Citing the Long History of Servicer Malfeasance, Advocates Promise to Maintain Extreme Vigilance over the Department of Education’s New Income-Driven Repayment Fix
May 2, 2022 | WASHINGTON — Today, the Student Borrower Protection Center (SBPC), National Consumer Law Center (NCLC), Student Debt Crisis Center (SDCC), and Center for Responsible Lending (CRL) sent a letter to the largest trade organizations representing student loan lenders and servicers underscoring their legal obligation to faithfully implement the U.S. Department of Education’s (ED) recent fix for income-driven repayment (IDR).
ED’s action stands to provide millions of distressed student loan borrowers relief on decades-old debt, but its success depends in part on the student loan industry delivering high-quality customer service that it has historically proven unable or unwilling to offer—in clear violation of the law.
In their letter, advocates promise to “remain extremely vigilant over the next several months” to ensure that student loan companies fulfill their obligation to deliver borrowers their rights under the IDR fix. The groups intend to use “every tool at [their] disposal—including, but certainly not limited to, open records requests, investigative reports, and the possibility of litigation—to ensure that borrowers’ rights are protected.”
A copy of the letter to student loan industry organizations can be found here: https://protectborrowers.org/wp-content/uploads/2022/05/Letter_IDR.pdf
“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,” said Mike Pierce, executive director of the Student Borrower Protection Center. “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.”
“The IDR fix is needed because student loan servicers failed to implement IDR properly over the past two decades,” said Abby Shafroth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. “That can’t happen again. Servicers must faithfully and effectively implement the IDR fix now so borrowers can finally get the benefit of the progress they’ve made toward getting out from under the crushing weight of student loan debt.”
“The root cause of IDR failure was program mismanagement that led millions into repayment for years with no end in sight,” said Jaylon Herbin, outreach and policy manager at the Center for Responsible Lending. “We must work together to ensure that borrowers, including borrowers of color, are not taken advantage of by abusive student loan servicers that fail to abide by the new IDR fix.”
“The dysfunctional student loan system has failed millions of Americans who believed there was meaningful relief available to them. It is unacceptable,” said Cody Hounanian, executive director of the Student Debt Crisis Center. “While we support the IDR fix as an opportunity to repair the financial harm done to borrowers and families, we continue to call for student debt cancellation as the most comprehensive solution to the broken system.”
The advocates’ letter references actions that ED took on April 19, 2022 to remedy allegations of illegal student loan servicing by companies like Navient, whom borrowers and law enforcement officials have accused of blocking borrowers’ right to relief on their student loans.
For nearly three decades, those 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. Under the changes announced on April 19, borrowers will generally be given credit toward IDR cancellation for any time spent in repayment, regardless of whether a student loan company drove them into the wrong payment plan.
The Department’s April 19 announcement also hugely expanded 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. As a result of the April announcement, more than 40,000 additional public service workers who were illegally steered into forbearance by a student loan company will receive debt cancellation.
Immediately after ED’s April 19 announcement, the student loan industry organizations addressed in today’s letter released a statement accusing ED of trying to “steer the conversation away from the root cause that [the Department’s Office of Federal Student Aid] has failed to fix the federal student loan repayment system for years.”
Advocates and government agencies alike have long noted that the student loan industry is financially incentivized to mislead students about their right to PSLF. In December 2021, months after the PSLF Limited Waiver was announced, the SBPC and a coalition of the nation’s largest unions outlined in a letter to the 25 largest private holders of federal student loans that these companies appeared to still be misrepresenting the qualifications for forgiveness under PSLF. In March 2022, the Consumer Financial Protection Bureau took enforcement action against a student loan company for misdirecting borrowers into believing that they were not eligible for PSLF when they were.
Background on Income-Driven Repayment
Starting in 1992, Congress has been promising federal student loan borrowers that “income-driven repayment” would make student debt affordable and finite—not a life-long burden. However, 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, a recent government audit found that only 157 borrowers have ever successfully accessed loan cancellation through this protection. At the same time, over 4.4 million borrowers have been in repayment for 20 years or longer and, if IDR worked as Congress promised, should have had their debt canceled by now. Government auditors revealed systemic errors in record-keeping that did the most harm to the lowest-income borrowers, with servicers failing to take basic steps to track how many payments borrowers had made toward IDR cancellation. Similarly, these auditors identified pervasive mistakes and gaps in the records servicers had retained of borrowers’ repayment histories.
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 to longstanding problems with IDR, SBPC, NCLC, and CRL sent a proposal to the Biden administration in early 2021 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 fully realized IDR waiver would complement fixes to the Public Service Loan Forgiveness 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.
- Education Department Announces Major Effort to Repair Student Loan Safety Net, Deliver Debt Relief for Millions of Low-Income People with Student Debt
- 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 Student Borrower Protection Center
The Student Borrower Protection Center (SBPC) 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.