A new, shocking report shows complete mismanagement of your student loans.
Here’s what you need to know — and what it means for your student loans.
An investigation from NPR has uncovered major mismanagement of student loans for at least 9 million student loan borrowers. According to the report:
- As of 2021, only 32 people have received student loan forgiveness through income-driven repayment plans, even though 4.4 million student loan borrowers are enrolled;
- Some student loan servicers weren’t tracking student loan payments properly and didn’t know when student loan borrowers qualified for student loan cancellation;
- The mismanagement of student loans particularly hurt financially vulnerable, low income student loan borrowers;
- Student loan payment history was lost when student loans were transferred to different student loan servicers; and
- Some student loan servicers took months or years to correct mistakes on student loan borrowers’ student loan accounts.
Student loan servicers didn’t properly track student loan cancellation
According to the report, three student loan servicers — PHEAA (FedLoan Servicing), CornerStone and MOHELA — did “not have an [income-driven repayment] forgiveness payment counter” to track student loan borrowers’ progress toward student loan cancellation. (Biden will cancel $6.2 billion of student loans). For example, student loan borrowers can qualify for student loan cancellation after 120 student loan payments for public service loan forgiveness. Similarly, student loan borrowers can qualify for student loan cancellation after 20 or 25 years under an income-driven repayment plan. However, the investigation uncovered that these student loan servicers weren’t counting how many student loan payments each student loan borrower made. (Biden dropped student loan cancellation from his annual budget). For example, the report claims that a student loan borrower at FedLoan Servicing would have to request a manual calculation to determine if they were eligible for student loan cancellation. This is a far cry from automatic student loan cancellation after meeting the supposed requirements. Also, this mean student loan borrowers — not student loan servicers — had the burden of tracking their student loan payments to get student loan cancellation.
Low income student loan borrowers hurt the most
Income-driven repayment plans such as IBR, PAYE, REPAYE and ICR help federal student loan borrowers save money on their student loans and get student loan cancellation. With an income-driven repayment plan, student loan borrowers pay a monthly student loan payment based on their discretionary income and family size. For low income student loan borrowers, their monthly student loan payment could be low as $0. According to the Center for American Progress, nearly 50% of student loan borrowers enrolled in an income-driven repayment plan pay $0 a month. However, at least some student loan servicers weren’t counting these $0 monthly payments toward student loan cancellation (even though they count). (Biden could cancel student loans while ending student loan relief). Even worse, when student loan borrowers who were in student loan default ultimately rehabilitated their student loans, some student loan servicers lost their student loan payment history. Therefore, due to technological flaws, these vulnerable student loan borrowers were unable to count their prior student loan payments prior to student loan default.
Senator: student loan payment pause should be extended to 2023
“[O]ur student loan system is seriously broken, it has been for years—and it must be fixed before borrowers are expected to start making payments again,” Sen. Patty Murray (D-WA) said. (New proposal would extend student loan payment pause and cancel student loans). Legislators in both parties are outraged and blame student loan servicers and the U.S. Department of Education. Murray says that there should be one income-driven repayment plan equal to 10% of a student loan borrower’s discretionary income that guarantees automatic student loan cancellation after 20 years. Biden and the Education Department have been working on ways to improve student loan repayment, including simplification of income-driven repayment. Since becoming president, Biden has cancelled $17 billion of student loans. Murray also has called for the student loan payment pause to be extended until 2023. (Biden could pause student loans forever). President Joe Biden has extended the student loan payment pause three times, and it’s possible he may extend for a fourth time. However, absent an extension, student loan payments will restart after May 1, 2022.
It’s essential to understand your options Here are some of the best ways to pay off student loans and save money: