With New Fix to Income-Driven Repayment, Education Department Looks to Remedy Allegations of Past Mismanagement and Industry Abuse But Fails to Help Defaulted Borrowers Who Are The Most Financially Vulnerable
April 19, 2022 | WASHINGTON, DC — The U.S. Department of Education (ED) announced a new action today that would begin to remedy historical failures of income-driven repayment (IDR) for low-income student loan borrowers. Through this effort, millions of people with student debt will be given credit toward debt cancellation under IDR and all borrowers who have been paying back federal student loans for 20 years or longer will be eligible to have their debts canceled.
More than 4.4 million people owe a student loan that has been in repayment for 20 years or longer. Today’s action offers a lifeline to millions of these borrowers, but is incomplete because it denies credit to those who have spent time in default, even though the vast majority of these borrowers had the right to pay little or nothing under IDR. According to ED data, more than 2.3 million of these people are not past-due or in default today. However, an additional 2.1 million people with decades-old debt are past due or in default on a federal student loan and will likely not have their debts canceled.
Statement from Persis Yu, Policy Director and Managing Counsel of the Student Borrower Protection Center:
Nobody should have to spend their entire life paying off debt accrued simply from seeking an education. Income-driven repayment promised that borrowers would not face a lifetime of unaffordable debt. Today, ED took action to start making that a reality—but they’re not done yet. By failing to include time that borrowers have spent in default, they’re still leaving out millions of borrowers for whom income- driven repayment has failed the most. To ensure that we will not continue to leave millions of borrowers behind, we need widespread student loan cancellation.
Statement from Mike Pierce, Executive Director of the Student Borrower Protection Center:
The failure of income-driven repayment mirrors the collapse of the Public Service Loan Forgiveness program, indiscriminately cheating low-income people and public service workers alike out of their rights. Although today’s initiative is another step in the right direction as the Biden administration works to keep promises made under the law to millions of people with student debt, it also illustrates the urgent need for the President to think even bigger. Joe Biden must keep his promise to cancel student debt for all borrowers before anyone is asked to pay another student loan bill.
Today’s proposal comes after the Student Borrower Protection Center (SBPC), Center for Responsible Lending (CRL), National Consumer Law Center (NCLC) proposed a similar, more expansive, executive action in January. Earlier this month, over 115 organizations endorsed this framework in a letter to the Biden Administration, calling on Secretary of Education Miguel Cardona to reform the broken IDR program and fulfill its original promise to cancel debts for low-income people.
Background on the ED Announcement
This action seeks to remedy allegations of illegal student loan servicing by companies like Navient, which borrowers and law enforcement officials have accused of blocking borrowers’ right to this relief. For nearly three decades, all people with federal student loans have been entitled to pursue debt cancellation via IDR, but a wave of recent lawsuits and scandals have exposed how government mismanagement and industry abuses denied this key protection to the most financially vulnerable borrowers.
Today’s announcement is also a major expansion of the Public Service Loan Forgiveness (PSLF) Limited Waiver, first announced in October 2021. The PSLF Limited Waiver similarly seeks to remedy widespread government mismanagement and student loan industry abuse by canceling student debt for teachers, nurses, members of the military, and other public service workers who serve for a decade or more. Until today, public service workers who were illegally steered into forbearance by a student loan company did not get credit under the PSLF Limited Waiver. As a result of today’s announcement, more than 40,000 additional public service workers will have their debts immediately canceled. Prior to today’s announcement, more than 110,000 public service workers have received nearly 7 billion in debt relief since October 2021.
Background on Income-Driven Repayment
Starting in 1992, Congress has been promising federal student loan borrowers that “income-driven repayment” (IDR) would make student debt affordable and finite (not a life-long burden). However, even despite continuous expansions of IDR, federal student loans have remained unaffordable for many, and delinquency and default have remained as prevalent as ever. This is especially true for Black, Latino, and low-income borrowers, who are less likely to successfully access IDR and thus remain very likely to face crippling student loan costs—another thing IDR promised to eliminate.
In fact, even though since 2016 it’s been possible to cancel student loans through IDR, an investigation by SBPC and NCLC in 2021 revealed that only 32 borrowers have ever successfully accessed loan cancellation. At the same time, over 4.4 million borrowers have been in repayment for 20 years or longer and, if the program worked as Congress promised, should have had their debt canceled by now.
Over the years, law enforcement, inspectors general, and policymakers at the state and federal levels have all documented that widespread failures and malfeasance have kept relief out of borrowers’ reach. Most recently, an NPR investigative report revealed rampant incompetence, misconduct, and even illegal activity permeating the IDR program.
In response, SBPC, National Consumer Law Center (NCLC), and the Center for Responsible Lending (CRL) sent a proposal to the Biden administration for the creation of a comprehensive “IDR waiver” that would:
- Retroactively count all months of repayment towards a borrower’s qualification for loan forgiveness, regardless of forbearance or default status.
- Provide relief automatically without putting the onus on borrowers to apply for such relief.
- Ensure that all federal loan borrowers, regardless of loan program, have access to the IDR waiver
A sweeping IDR waiver would complement fixes to the Public Service Loan Forgiveness (PSLF) program to ensure that student loans are affordable for all and low-income and borrowers of color can finally realize the promise of IDR student debt cancellation.
Additional background materials:
- 117 Organizations Urge Cardona to Restore the Promise of Income-Driven Repayment with Waiver Program
- Sen. Brown (OH), Sen. Warren (MA), and Sen. Durbin (IL) Send Letter to CFPB Dir. Chopra and U.S. Education Secretary Cardona Urging Action on IDR Program
About the Student Borrower Protection Center
The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.