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Income-based student loan payment plans have failed borrowers – new report finds they’re ‘worse than expected’, top Democrat says

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  • An NPR investigation found that income-driven repayment plans are more flawed than previously known.

  • Three student loan companies failed to track borrower payments, excluding them from the forgiveness trail.

  • Low-income borrowers making $0 payments were the hardest hit by the plan’s failure, NPR said.

The failure of income-based student loan repayment plans is no secret, but a new NPR investigation has revealed that the flaws in these plans are far worse than anyone realized.

Income-Based Repayment (IDR) plans aim to give borrowers affordable debt repayments by creating a monthly student loan payment plan based on the borrower’s income and family size. It promises loan forgiveness after 20 to 25 years on the plan. But to date, only 32 borrowers — in total — have qualified for full forgiveness, and NPR’s Cory Turner explained why exactly.

His discoveries were brutal. According to internal documents from a 2016 review obtained by NPR, three student loan companies — PHEAA, CornerStone, and MOHELA — were not tracking payments made by borrowers for their IDR plans, meaning borrowers would have to ask the company – whose job it was to track their payments – to conduct a “labour-intensive file review” to determine if the borrower qualifies for loan forgiveness.

CornerStone terminated its federal contract in 2020, and MOHELA and PHEAA did not immediately respond to Insider’s request for comment.

Additionally, Turner found that low-income borrowers are most affected by the mismanagement of IDR plans. While the plans allow borrowers to make $0 monthly payments that count toward loan forgiveness progress, internal documents revealed that those payments were not “adequately tracked.”

“We knew there was a problem,” Rep. Bobby Scott, the top Democrat on the House Education Committee, told NPR. “It’s worse than we expected.”

According to data from the Ministry of Education, 4.4 million borrowers on IDR plans have been in repayment for 20 years or more, and plan flaws have prevented the vast majority of these borrowers from paying debts that maybe they didn’t even have to. Insider reported in December that President Joe Biden had announced IDR reforms, such as temporarily reducing paperwork requirements in applications, but some lawmakers said permanent solutions were needed to provide meaningful relief to people. borrowers.

In response to NPR’s findings, Senate Education Committee Chair Patty Murray said in a statement that IDR plans “should be a lifeline that allows borrowers to work toward real relief — but it is now clearer than ever that these plans have failed to provide a reliable path to relief that millions of borrowers have worked diligently for.”

“This is an urgent problem that needs real solutions: we need a workable IDR plan for all borrowers, and we need to make sure those who have been stuck in repayment for more than 20 years get the debt relief due to them,” she added. .

Some Republican lawmakers agree with Murray that borrowers need better loan repayment plans. But the more than two-year pause on student loan payments is set to end in less than a month on May 1, and while Democrats like Murray want to see the student loan industry and its programs fixed before the Payments don’t resume, Republicans don’t want to see an extension of the broad relief.

“The Biden administration owes Congress and the American people a plan that will resolve the challenges facing student loan servicing companies and the confusion of borrowers, and provide a clear timeline for the resumption of student loan repayments,” he said. said Rep. Virginia Foxx, the top Republican on education in the House. committee, said above.

“President Biden’s latest extension is a troubling trend of blanket student loan forgiveness, which would be a massive mistake, with major consequences for borrowers and taxpayers,” she added.

A Department of Education spokesperson told NPR that the department is “aware of historical issues with past processes that have compromised the accurate tracking of eligible payments. The current situation is unacceptable and we are committed to addressing these issues.” “.

Read the original article on Business Insider