A shocking new report shows complete mismanagement of your student loans.
Here’s what you need to know — and what it means for your student loans.
A survey of NPR uncovered major student loan mismanagement for at least 9 million student borrowers. According to the report:
- In 2021, only 32 people received student loan forgiveness under income-driven repayment plans, even though 4.4 million student borrowers were enrolled;
- Some student loan managers did not properly track student loan repayments and did not know when student borrowers were eligible for student loan forgiveness;
- Mismanagement of student loans has particularly hurt financially vulnerable, low-income student borrowers;
- Student loan payment history was lost when student loans were transferred to different student loan servicers; and
- Some student loan servicers have taken months or years to correct errors on the student loan accounts of student borrowers.
(Student loan cancellation and student loan payment suspension are confusing. Here’s what to know)
Student Loan Servicers Didn’t Properly Track Student Loan Cancellation
According to the report, three student loan servicers – PHEAA (FedLoan Servicing), CornerStone and MOHELA – had “no [income-driven repayment] remittance payment meter” to track student borrowers’ progress toward student loan forgiveness. (Biden will forgive $6.2 billion in student loans). For example, student borrowers may be eligible for student loan forgiveness after 120 student loan payments for public service loan forgiveness. Similarly, student borrowers can benefit from student loan forgiveness after 20 or 25 years under an income-driven repayment plan. However, the survey found that these student loan managers did not count the number of student loan repayments made by each student borrower. (Biden removed student loan forgiveness from his annual budget.) For example, the report states that a student borrower at FedLoan Servicing should apply for a Manual calculation to determine if they were eligible to have their student loan forgiven. This is a far cry from automatic student loan cancellation after meeting supposed requirements. Further, it meant that student loan borrowers – not student loan servicers – had the burden of keeping track of their student loan payments to get their student loan forgiven.
Low-income student borrowers are the most affected
Income-driven repayment plans such as IBR, PAYE, REPAYE, and ICR help federal borrowers save money on student loans and get their student loan forgiven. With an income-driven repayment plan, student borrowers pay 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 low as $0. According to the Center for American Progress, nearly 50% of student borrowers enrolled in an income-driven repayment plan pay $0 per month. However, at least some student loan servicers weren’t counting those $0 monthly payments for student loan forgiveness (even though they do). (Biden could cancel student loans while ending student loan relief). Worse still, when student borrowers who were in default eventually rehabilitated their student loans, some student loan servicers lost their student loan payment history. Therefore, due to technological flaws, these vulnerable student borrowers were unable to count their previous repayments prior to default.
(The new proposal would extend the student loan payment break and cancel student loans)
Senator: Suspension of student loan payments should be extended until 2023
“[O]Our student loan system has been badly damaged, for years — and it needs to be fixed before borrowers start making payments again,” said Sen. Patty Murray (D-WA). (The new proposal would extend the student loan payment break and cancel student loans). Lawmakers from both parties are outraged and blame student loan servicers 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 that guarantees automatic student loan forgiveness after 20 years. Biden and the Department of Education have been working on ways to improve student loan repayment, including simplifying repayment based on income. Since becoming president, Biden has forgiven $17 billion in student loans. Murray also called for the suspension of student loan payments to be extended until 2023. (Biden could suspend student loans forever). President Joe Biden has extended the student loan payment break three times, and he may extend a fourth time. However, in the absence of an extension, student loan repayments will resume after May 1, 2022.
Understanding your options is key. Here are some of the best ways to pay off student loans and save money: