By Mike Pierce | September 30, 2021
For more than 25 years, policymakers have promised federal student loan borrowers that their debts will not be a life-long burden. Yet a growing body of research has shown critical safety valves aimed at preventing student loan debt from posing long-term financial hardship failed to function as intended, locking borrowers in debt for decades even when the law promised paths to a debt-free future.
In particular, Income-Driven Repayment (IDR), the most powerful anti-poverty program in the Education Secretary’s toolbox, suffers from a critical flaw that has denied its benefit to millions of people who are currently trapped in decades-old debt. When regulators at the Department of Education (ED) created the current rules for IDR, they sought to provide borrowers with short-term payment relief while also promising to cancel student debt after 20 or 25 years. These twin goals are critical and must work in tandem for IDR to succeed—because monthly payments are often insufficient to satisfy the amount of student loan interest that accrues each month, borrowers depend on the promise of debt cancellation to avoid an endless cycle of debt.
Earlier this year, a report by the National Consumer Law Center and the SBPC estimated that there were more than 2 million student loan borrowers with debts over 20 years old and that only 32 borrowers had ever had debts cancelled under IDR. This report, for the first time, quantified the scale of IDR’s failure to deliver promised debt cancellation and the costs borne by generations of student loan borrowers left behind as a result.
Today, the SBPC released the final report in our ongoing series on IDR, Driving into a Dead-End: Why IDR Has Failed Millions With Decades-Old Debts, building on this prior research and demonstrating that the scale of the harm caused by IDR’s failure was far larger than previously assumed. We now know that a generation of student loan borrowers remains trapped in this broken system and that, without structural changes by ED, IDR will not offer a viable way out for these borrowers in the future.
Read our new report: Driving Into a Dead End: Why IDR Has Failed Millions with Decades-Old Debts
Specifically, our new report finds the following:
- More than four million student loan borrowers remain trapped in decades-old debts—double the number previously reported. In April 2021, U.S. Senator Elizabeth Warren asked ED directly about the number of borrowers with federal student loans who had been in repayment for specific periods of time. In response to this request, ED’s office of Federal Student Aid (FSA) revealed for the first time that the number of borrowers with decades-old debts exceeds 4.4 million borrowers. This is more than double the estimate of two million borrowers generated by NCLC and SBPC.
- An internal analysis prepared by the largest student loan servicer projects that fewer than 50 additional borrowers in its portfolio will have debts cancelled under IDR in the next five years. In response to an open records request submitted to ED’s largest student loan servicer, the Pennsylvania Higher Education Assistance Agency (PHEAA), the SBPC obtained internal correspondence projecting that, of PHEAA’s more than 8.5 million customers, only 48 borrowers would receive debt cancellation under IDR by 2025. This correspondence from December 2020 offers new evidence that the people responsible for running the student loan system know that IDR will continue to fail borrowers far into the future.
- Half of all borrowers who have enrolled in the largest IDR plan failed to remain in IDR over time. This report includes a first-of-its-kind analysis of Education Department administrative data revealing that the widespread mismanagement and abuse crippling the student loan system is poised to block access to debt cancellation for the next generation of student loan borrowers. SBPC’s analysis estimates that between 2018 and 2020, half of all borrowers who enrolled in the newest and largest IDR option, Revised Pay as You Earn (REPAYE), failed to remain enrolled in the plan over time, leading more than a million student loan borrowers to experience a range of financially devastating consequences, including interest capitalization, payment shocks, and lost progress toward debt cancellation.
Taken together, this new research shows how prior efforts to expand IDR have failed to offer a long-term solution for millions of borrowers who have taken on historic debt burdens over the past two decades. The promise of debt cancellation after 20 or 25 years never existed for these borrowers—instead they’ve been offered the promise of affordable payments in the short term while being locked in a debt trap.
Next week, ED will kick off the process of rewriting IDR’s rules for the fourth time since 2009. Previous efforts have only paid lip service to the idea that IDR must offer borrowers’ a way out of debt, instead creating a dead-end for millions of borrowers with older debts. This time, rule writers must open up IDR to give borrowers with existing debts credit based on how long they’ve been in debt, regardless of borrowers’ loan type, payment plan, loan status, or whether they have previously fallen behind on their loans. Each of the stumbling blocks created in prior regulations seem tailor-made to deny relief to the most vulnerable borrowers—administrative burdens proven to disproportionately deny the benefits of IDR to those this protection was intended to serve.
It is time for ED to fix the giant structural flaw at the center of past efforts and instead keep the promise IDR’s framers first made nearly three decades ago: student debt should never be a life-long burden.
Read more on the SBPC’s work related to income-driven repayment here.
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Mike Pierce is the Policy Director and Managing Counsel at the Student Borrower Protection Center. He is an attorney, advocate, and former senior regulator who joined SBPC after more than a decade fighting for student loan borrowers’ rights on Capitol Hill and at the Consumer Financial Protection Bureau.