Income-Driven Payment Plans Failed to Give Student-Loan Borrowers Relief

The Education Department says changes are coming to income-driven repayment plans for student debt. A…

  • The Education Department says changes are coming to income-driven repayment plans for student debt.
  • A watchdog recently found flaws with the plans that seemed to block eligible borrowers from relief.
  • Advocates and lawmakers praised the changes but said more would be needed to fix systemic issues.

The student-loan industry has been full of bureaucratic hurdles for millions of borrowers since its inception — and a new government report revealed there’s still a lot of work to be done.

A recent area of focus for President Joe Biden’s Education Department and activists alike has been income-driven repayment programs, which are meant to keep monthly payments affordable for borrowers, sometimes as low as $0 based on family income. Signed into law by Congress in 1992 and now managed by the Education Department, these plans promise full loan forgiveness after 20 or 25 years.

“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” Secretary of Education Miguel Cardona said April 19 while announcing steps designed to bring 3.6 million borrowers on income-driven repayment plans closer to forgiveness.

The department plans to do this by conducting a one-time revision of borrowers’ accounts to credit them for months in repayment that weren’t previously counted, which could have happened if they were on a different repayment plan or in deferment.

The next day, a report from the Government Accountability Office threw into question how effective the plans had been.

As of June, the GAO report found, the Education Department had approved just 157 loans for full forgiveness under income-driven repayment plans, with 7,700 more loans “potentially eligible” for forgiveness. The report said it couldn’t decisively conclude whether those thousands of additional loans were eligible because of “gaps in Education’s data.”

In response, it said, in February it issued recommendations to the Education Department encouraging it to better verify and track payments made under IDR plans. Melissa Emrey-Arras, the author of the GAO report, told Insider she’s “glad” the department “agreed with the findings and recommendations from our report and is taking steps to implement our recommendations.”

The focus on income-driven repayment comes just weeks after Biden extended the pandemic-era pause on all federal student-loan payments, with waived interest, through August 31, following calls from Democratic lawmakers and advocates who wanted to see continued relief. He also announced plans to restore over 7 million student-loan borrowers in default to good standing before they’d have to reenter repayment. But while some in Congress remain skeptical about efforts to forgive student debt, advocates see the department’s recent reforms as a mere starting point.

A failure to keep track of payments that would qualify borrowers for forgiveness

Persis Yu, a former attorney specializing in student loans at the National Consumer Law Center who now serves as the policy director at the Student Borrower Protection Center, which advocates student-loan relief, said the department’s announced steps to fix IDR were certainly “a good place to start.”

But Yu is just one of the advocates who have argued the approach is not enough to fix long-standing issues that have kept borrowers who should’ve qualified for forgiveness under existing rules from ever getting it.

“The department is acknowledging that income-driven repayment really has failed to produce the results that Congress intended, and that there are systemic failures on both the department’s part and on its servicers,” Yu said, referring to the companies contracted by the federal government to manage student loans. “And I think that acknowledging that problem is very helpful in terms of how we address this going forward.”

A primary focus of the GAO report was the ability of the Education Department and student-loan companies to track data and payments accurately, particularly when it comes to payments made before 2014 through IDR. The department announced that, as part of its overhaul of IDR, it would implement a payment tracker on the Federal Student Aid website beginning in 2023 so borrowers could track their progress toward forgiveness.

“Education officials said data limitations make it difficult to track some qualifying payments and older loans are at higher risk for payment tracking errors,” the report said. “Until Education takes steps to address such errors, some borrowers may not receive the IDR forgiveness they are entitled.”

As it turns out, the department has been aware of inaccuracies tracking payments for years. Per the report, issues with older qualifying payment counts were brought to light in 2015, but even with knowing those issues, the department “advises servicers to consider previous servicers’ counts as accurate,” GAO said.

Even more, it’s standard policy for loan companies to not regularly communicate payment progress with the borrower, and while the borrower can request information on their progress, many of them don’t even know they have the option to do so.

“It’s frankly inexcusable,” Yu said. “And it paints a bigger picture about how our system treats the most financially vulnerable folks and how broken the student-loan borrower system has been for so long.”

Democrats laud the relief; GOP takes issue with broad forgiveness

In recent months, a growing number of Democratic lawmakers have been pushing the Education Department to act on IDR, and they lauded the latest announcement as a step forward.

Sens. Elizabeth Warren, Sherrod Brown, and Dick Durbin said in a joint statement that it’s “an important step to ensure the effectiveness of our student-loan cancellation programs and to enable low-income borrowers to eliminate their debt so they can buy a home, start a business, and fully participate in the economy.”

“We will keep working to ensure these programs are not overly complex, fulfill their promise of forgiveness, and make it easier for all Americans to afford a quality education,” they added.

But not all lawmakers have a goal of ensuring broad student-loan relief. Rep. Virginia Foxx, the Republican ranking member of the House education committee, wrote in a statement that “a program that was the brainchild of, and expanded by, Democrats, turned out to be a complete disaster and taxpayers are forced to foot the bill for these mistakes,” most likely referring to the cost of loan forgiveness. “Color me shocked.”

Still, Democrats maintain the department is headed in the right direction when it comes to student-loan relief. Sen. Patty Murray, the chair of the Senate education committee, issued a statement saying the new developments would “make a huge difference in the lives of so many borrowers” and were an “urgently needed step in the right direction.”

Do you have a story to share about income-driven repayment plans or student debt? Reach out to Ayelet Sheffey at [email protected]