- Recent reports have revealed decades of mismanagement with income-driven repayment plans.
- The Education Department recently announced reforms to the plans, bringing 3.6 million student-loan borrowers closer to relief.
- Four advocacy groups wrote to industry leaders to ensure they deliver that relief effectively.
Over the past decade, student-loan companies have been accused of mismanagement and deception, leaving borrowers with debt they have struggled to pay off.
Now, advocacy groups want to ensure those companies’ checked histories won’t block low-income borrowers from relief.
On Monday, the Student Borrower Protection Center, Student Debt Crisis Center, the Center for Responsible Lending, and the National Consumer Law Center sent a letter to the three largest trade organizations that represent student-loan companies and lenders. The letter, first obtained by Insider, is following up on a recent announcement from President Joe Biden’s Education Department on steps to fix income-driven repayment (IDR) plans. While the plans are intended to give borrowers affordable monthly payments with the promise of full forgiveness after 20 or 25 years, “harmful servicing practices” have ensured very few borrowers got the relief they deserved, the letter said.
The groups want to ensure that won’t happen again.
“The student loan industry has already robbed an entire generation of debt relief that they should’ve received through IDR. This time around, all eyes are on these companies as we wait for them to deliver the IDR fix as required by statute,” Mike Pierce, executive director of the Student Borrower Protection Center, said in a statement. “The financial future of millions of low-income people is on the line—and we intend to do whatever it takes to make sure the student loan industry finally gets this right.”
On April 19, the Education Department announcement 3.6 million borrowers enrolled in IDR plans will be brought closer to loan forgiveness through steps to end “forbearance steering,” which is when a student-loan company places borrowers in forbearance on their payments even when they could enroll in $0 payments through IDR, hurting credit reports and potentially leading to delinquency or default. Prior to that announcement, only 32 borrowers ever had been approved for loan forgiveness through IDR, and a report from the Government Accountability Office delved further into failure of the plans, partly caused by loan companies simply not tracking payments made.
But now, the advocacy groups wrote, the student-loan industry has a chance to change their behavior and get this relief right.
“Millions of student loan borrowers are depending on you and the companies you represent to get the IDR fix right,” they wrote. “We will remain extremely vigilant over the next several months to ensure that you do.”
Industry leaders should ensure borrowers get ‘the rights they have long been denied’
Following the Education Department’s announcement on IDR reforms, the Education Finance Council, National Council of Higher Education, and Student Loan Servicing Alliance — the organizations that represent student-loan servicers and lenders — released a statement saying the changes “were not shared with any advance discussion with servicers who will again be put into the position of being unable to provide clear and concise information to, or address questions from, borrowers or have advance planning for implementation.”
The advocacy groups wrote that while the Education Department is undoubtedly responsible for student-loan programs, the companies that run them should also be held accountable for the management of repayment programs, and how relief is carried out. Prior to the department’s announcement of reforms, NPR released an investigation that revealed longstanding flaws with how loan companies have managed IDR. It found that the companies that manage IDR plans were not tracking payments toward forgiveness, and borrowers had to specifically request updates on payment progress.
And those failures were hurting low-income borrowers the most — the investigation revealed borrowers making $0 monthly payments were not “adequately tracked.”
In light of those findings and recent reforms, the advocacy groups wrote that instead of “focusing on how to avoid accountability and deflect blame, we encourage you to focus on finally delivering borrowers the rights they have long been denied and that ED’s actions may now allow them to access.”
They vowed to use “every tool at our disposal,” including investigations and litigation, to ensure eligible student-loan borrowers get the relief they deserve.