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 of NPR has uncovered major student loan mismanagement among at least 9 million student borrowers. According to the message:
- As of 2021, only 32 people have received student loan forgiveness through income-based repayment plans, even though 4.4 million student borrowers are enrolled;
- Some student loan servicers did not properly track student loan payments and did not know when student loan borrowers qualified for student loan cancellations.
- Mismanagement of student loans particularly hurt financially vulnerable, low-income student borrowers;
- Student loan payment history was lost when student loans were transferred to different student loan providers. and
- Some student loan service providers took part months or years to correct errors in borrowers’ student loan accounts.
(Student Loan Cancellation and Student Loan Payout Pause are confusing. What you should know)
Student loan service providers did not properly track student loan cancellations
According to the report, three student loan service providers — PHEAA (FedLoan Servicing), CornerStone and MOHELA — “didn’t have any [income-driven repayment] Forgiveness Payment Counter” to track student loanee cancellation progress. (Biden will call $6.2 billion in student loans). For example, student loan borrowers may qualify for government loan forgiveness for student loan cancellation after 120 student loan payments. Similarly, student loan borrowers may qualify for student loan cancellation after 20 or 25 years under an income-based repayment plan. However, the research found that these student loan administrators did not count how many student loan payments each student loan borrower made. (Biden removed the student loan cancellation from his annual budget). For example, the report claims that a student loan borrower would need to apply to FedLoan Servicing for one Manual Calculation to determine if they were eligible for student loan cancellation. This is still a long way from an automatic termination of the student loan after the supposed requirements have been met. It also means that student loan borrowers — not student loan servicers — had the burden of tracking their student loan payments to receive a student loan cancellation.
Low-income student loans hurt the most
Income-based repayment plans such as IBR, PAYE, REPAYE, and ICR help federal student loan borrowers save money on their student loans and receive student loan cancellation. With an income-based repayment plan, student loan borrowers make a monthly student loan payment based on their discretionary income and family size. For low-income student borrowers, their monthly student loan payment could be as little as $0. According to the Center for American Progress, nearly 50% of student loan borrowers who enroll in an income-based repayment plan pay $0 a month. However, at least some student loan providers didn’t count those $0 monthly payments toward student loan cancellations (although they do count). (Biden could cancel student loans while also ending student loan relief). Worse, when defaulting student loan borrowers eventually rehabilitated their student loans, some student loan administrators lost their student loan payment history. Therefore, these vulnerable student borrowers could not count their previous student loan payments prior to the student loan default due to technological deficiencies.
(New proposal would extend student loan payment pause and cancel student loans)
Senator: Student loan pause to be extended to 2023
“[O]Our student loan system has been seriously broken for years — and it needs to be fixed before borrowers are expected to start making payments again,” said Senator Patty Murray (D-WA). (New proposal would extend student loan payment pause and cancel student loans). Lawmakers from both parties are outraged, blaming the student loan service providers and the US Department of Education. Murray says there should be an income-based repayment plan equal to 10% of a student borrower’s discretionary income, which guarantees automatic cancellation of the student loan after 20 years. Biden and the Department of Education have been working on ways to improve student loan repayments, including simplifying income-based repayments. Since becoming president, Biden has canceled $17 billion in student loans. Murray has also called for the student loan payment pause to be extended to 2023. (Biden could pause student loans forever). President Joe Biden has extended the student loan payment pause three times, and he may extend it a fourth time. However, without an extension, student loan payments will resume after May 1, 2022.
It’s important to understand your options. Here are some of the best ways to pay off student loans and save money: