Student Loan Forgiveness And Repayment Plans At Major Risk

The Biden administration has implemented a number of student loan forgiveness and repayment initiatives designed to provide relief to borrowers as payments resume this month. Officials have touted nearly $127 billion in student loan forgiveness approved for borrowers so far.

These initiatives include loan forgiveness programs for public servants, borrowers who have been in repayment for many years, and those who have been defrauded by their school. The Education Department is also rolling out a new income-driven repayment plan called SAVE, which officials are touting as the most affordable student loan payment option ever created.

But borrowers are increasingly facing implementation problems due to an underfunded, understaffed, and poorly managed student loan servicing system. And these issues may only worsen in the coming weeks and months, jeopardizing the student loan forgiveness and repayment relief the administration has been promising.

Here’s what’s going on.

Student Loan Forgiveness And Repayment Programs Hampered By Servicing Problems

As millions of borrowers are forced to resume payments on their student loans this month, many have been trying to reach their loan servicer to review their options, change their plans, or get their questions answered. But thousands of borrowers have been unable to connect with their loan servicer.

The Consumer Financial Protection Bureau, a federal watchdog agency tasked with overseeing the financial services sector, has received an ongoing stream of complaints from student loan borrowers over extremely long call hold times. After Congress refused to provide the Education Department’s Office of Federal Student Aid with additional funding, loan servicers have been unable to add and train additional customer service staff to handle the increasing volume of calls.

Other student loan borrowers have been reporting additional issues such as confusing or misleading communications from loan servicers, involuntary forbearances, and failure to timely process documents.

Borrowers Approved For Student Loan Forgiveness Face Bills As Repayment Resumes

The Education Department has approved over 200,000 borrowers for student loan forgiveness under a landmark settlement to address allegations of school misconduct. Under the Sweet v. Cardona settlement, borrowers are expected to receive $6 billion in loan discharges.

Separately, hundreds of thousands of additional borrowers have been approved for automatic group discharges associated with their attendance at high-profile national chains of for-profit institutions that collapsed due to allegations of misconduct. These include Corinthian Colleges and ITT Technical Institutes.

But approved loan forgiveness has taken time to implement, and many borrowers are still waiting on their discharges to go through as student loan payments resume. Advocates are indicating that loan servicers are improperly billing borrowers covered by the Sweet settlement and other approved student debt relief.

“As repayment approaches, this incremental approach… means hundreds of thousands of individuals who were swindled into student debt will be receiving a bill instead of the cancellation they deserve—and that the Administration promised,” said the Project on Predatory Student Lending in a tweet last week. “Let’s be clear: collecting ‘cancelled’ debt violates a multitude of federal and state laws, @usedgov‘s own regulations, and court orders… The harm to borrowers will be irreparable in some cases.”

Loan Servicers Miscalculating Student Loan Payments

Borrowers are also facing problems associated with student loan repayment. The Biden administration has been engaged in a major campaign to encourage borrowers to enroll in the new SAVE plan, designed to be the most affordable income-driven repayment program ever created. Millions of borrowers may see a significant reduction to their monthly payments under the new plan.

But loan servicers are making systemic mistakes and miscalculating student loan payments under SAVE. A recent report by The Washington Post found that at least 420,000 borrowers had their SAVE payments miscalculated by their loan servicer in recent weeks. Some of these borrowers have been placed in forbearances to address the miscalculations, while others have had to try to fix the errors themselves — forcing them to try to work with loan servicers who are already stretched thin and contending with massive paperwork backlogs and understaffed call centers.

Looming Shutdown Could Hinder Further Student Loan Forgiveness And Repayment Initiatives

Congress narrowly avoided a government shutdown last week as a bipartisan group of House lawmakers agreed to pass a stop-gap measure to fund the government for 45 days. But that temporary deal resulted in the ouster of House Speaker Kevin McCarthy (R-CA). Now, House Republicans have no clear leader or a pathway to a new speaker. And the government will be facing the prospect of another shutdown in a matter of weeks.

If the government shuts down in November, multiple federal student loan forgiveness and repayment initiatives could be in jeopardy, leading to catastrophic consequences. The Education Department must provide final approval for student loan forgiveness under several programs including Public Service Loan Forgiveness, Borrower Defense to Repayment, and the Total and Permanent Disability discharge program. The department also is administering the IDR Account Adjustment, which has resulted in waves of student loan forgiveness every two months since this summer.

A government shutdown would result in the department furloughing most of its staff, grinding many of these programs to a halt. And the department’s key dispute resolution bodies, including the FSA Feedback division and the FSA Ombudsman Group, may largely shut down, as well. This would leave borrowers with little recourse if they encounter a problem with their loan servicer, as many already are experiencing.