In an attempt to address what it describes as "historical failures in the administration of the federal student loan program," the U.S. Department of Education is taking on loan servicer practices that led people with student debt away from loan forgiveness programs that they could've been using. The new measures could affect more than 3.6 million borrowers, some of whom might soon owe nothing on their loans.
The primary focus of DOE's latest efforts is on income-driven repayment, or IDR, forgiveness — the program that allows borrowers with lower incomes and higher debt to make a fixed number of income-adjusted payments after which the balance of the loan is written off.
According to DOE, many servicers have engaged in what it calls "forbearance steering," in which borrowers who might've qualified for the IDR program were pushed toward forbearance — essentially, pressing pause on repayments — sometimes for 36 months or longer. The problem with forbearance? While the payments may stop, the interest continues to pile up, ultimately increasing the loan balance.
DOE believes that forbearance steering is in violation of department rules and that servicers have been generally lax about providing borrowers with complete information on their option to pursue IDR. The practices also may have pushed qualified borrowers away from immediate loan cancellation under the Public Service Loan Forgiveness program, or PSLF — the program for borrowers in public service-sector jobs that offers loan forgiveness after 120 qualifying monthly payments. The PFLS was at the center of DOE reforms announced last fall. [Think you might qualify for a PSLF waiver? Find out more — including why it's important to consolidate your loans by October 31 if you qualify.]
The changes, which may take several months to take effect, could result in some 3.6 million borrowers receiving at least three years of additional credit toward IDR forgiveness, and could trigger immediate loan cancellation for about 40,000 borrowers who qualify for PFLS. Additionally, "several thousand" borrowers may also receive forgiveness on the balance of their loans, according to a DOE press release.
The reforms are strongly supported by APTA, which targets PT and PTA debt burden as a key element of the association's strategic plan.
The agency's reform efforts include:
Counting long-term forbearances toward IDR and PSLF forgiveness. Federal Student Aid will make a one-time adjustment that will count forbearances of more than 12 consecutive months or 36 total months toward loan forgiveness goals in both the IDR and PFLS programs.
Clamping down on servicers' practices. Servicers will find it more difficult to enroll borrowers in forbearance via text or email, and FSA will collaborate with the federal Consumer Protection Bureau to conduct regular audits of forbearance practices.
Improving the tracking of IDR payments — and addressing past tabulation errors. DOE believes that many borrowers in the IDR program missed out on qualifying payments due to shoddy tracking. In addition to shoring up that tracking, including adding online access to individual borrower payment counts, the agency is directing FSA to make a one-time revision to all IDR qualifying payments for all Direct Student Loans as well as loans managed under the Federal Family Education Loan Program. For those borrowers, any payments made will count toward IDR forgiveness, as will all deferment months before 2013.