According to a new federal study, thousands of Americans may have been saddled with student debt that should have been automatically canceled thanks to a benefit for low-income borrowers.
In a scathing report released on Wednesday, the Government Accountability Office blamed the Department for Education for sloppy oversight of its income-based repayment scheme – a set of plans that offer reduced monthly payments and promise to erase all remaining debts after 20 or 25 years. of payments.
The study, commissioned by Congress, identified 7,700 federal student loans that appear to qualify for loan forgiveness but had not yet been forgiven as of September 2020. The loans were held by 3,000 borrowers and totaled at $49 million.
It was released a day after the Department for Education announced changes to correct what it called the program’s “historic failures”. These changes should help some borrowers get their repayments faster.
Investigators said they could not verify why the loans had not been canceled – gaps in data from the Department for Education made it impossible to know for sure. But they suggested it could be the result of poor record keeping.
Prior to 2014, according to the report, the ministry did not ensure that borrowers’ monthly payments were tracked. This in turn made it impossible for the agency to track borrowers’ progress towards loan cancellation, leaving some loan repayments taking longer than they should have.
So far, only 157 loans have been canceled under revenue-driven plans, according to the study.
“The Department of Education has struggled to track borrower payments and has not done enough to ensure that all eligible borrowers receive the discount to which they are entitled,” GAO said. “We found thousands of borrowers still in repayment who may be eligible for the forgiveness now.”
The report details a host of other shortcomings of the income-tested reimbursement program.
Education officials did not clarify requirements to borrowers, including the types of payments that count, according to the report. When borrowers pause payments as part of the forbearance process, for example, that time generally does not count toward forgiveness. But this was not clearly explained, the GAO found.
He also faulted the agency for not telling borrowers they could request an update on their progress towards loan cancellation.
Created in 1994, the income-tested repayment program was intended to provide a safety net for people struggling to repay their student loans. The program now offers five repayment options that offer lower monthly payments based on income and family size. The balance is supposed to be automatically returned after 20 or 25 years, depending on the plan.
Of the more than $1 trillion in student debt held by the federal government, about half is repaid through these schemes.
The number of loans eligible for forgiveness under the program is expected to increase in coming years, according to the GAO. By 2030, the office estimates, up to 1.5 million loans held by 600,000 borrowers could qualify for forgiveness.
In a response to the report, Ministry of Education officials acknowledged the program’s failures and promised improvements. They also recognized the need to act quickly.
“We recognize that it is important to count payments correctly now because the number of loans that have been repaid long enough to qualify for loan forgiveness will only increase over time,” wrote Richard Cordray, Director operating Federal Student Aid, the office that oversees student loans.
He added that the scheme had “long been a source of confusion and frustration for many borrowers”.
Cordray accepted a list of changes recommended by the GAO. He said his agency would identify and correct record-keeping errors and create a system for borrowers to check their progress toward loan forgiveness online, among other changes.
As part of the ministry’s new action, borrowers in income-driven plans will have all of their past monthly payments counted toward loan forgiveness, even if they weren’t in a repayment-eligible plan. era. Borrowers who have had long periods of forbearance will also see this time counted for forgiveness, although it is generally excluded.
The department called it a one-time revision “to correct data issues and past implementation inaccuracies.”
Borrower rights advocates applauded the changes but also called for broader improvements to the program, which has long been criticized for being too complex. Congressional Democrats urged the department to replace existing income-based reimbursement plans with a single, more generous plan.
Among those calling for an overhaul is Rep. Bobby Scott, D-Va., who heads the House Education Committee and called for the GAO investigation. In a statement, he said the report “confirms serious management problems” with the program.
“I am pleased that the Biden-Harris administration has announced steps to address the issue,” he said. “I remain ready to work with the Department of Education to improve the income-contingent repayment scheme.”
The latest action is part of the Biden administration’s piecemeal attempt to reduce the student debt burden. The Department of Education has taken steps to make it easier to get loan forgiveness through other programs, including one for public servants and another for students defrauded by their colleges.
This month, the administration also suspended student loan repayments through August, extending a freeze that allowed millions of Americans to defer payments during the pandemic.
But President Joe Biden also faces growing pressure to enact sweeping student debt forgiveness for all borrowers, which was one of his campaign promises. Some Democrats have pressed Biden to rescind $50,000 for all student borrowers, saying it would boost the economy and address racial inequality.
Biden has previously said he supports rescinding up to $10,000, but said it would have to be done by Congress. Last year, he called for a review of the legality of using executive action to erase student debt. No decision has been announced.
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