04.14.22

Durbin, Brown, Warren Urge Review Of Loan Servicers' Student Loan Program Mismanagement

WASHINGTON – Today, U.S. Senate Majority Whip Dick Durbin (D-IL) and U.S. Senators Sherrod Brown (D-OH) and Elizabeth Warren (D-MA) sent letters urging the Consumer Financial Protection Bureau (CFPB) and Department of Education (ED) to review student loan servicers’ reported mismanagement of the income-driven repayment (IDR) program, leading to significant harm for low-income borrowers.

 

“A recent NPR investigative report found the IDR program is riddled with problems and mismanagement, even worse than the public previously understood, resulting in millions of borrowers becoming unable to obtain debt cancellation,” the Senators wrote in their letter to the CFPB. “…The loan servicers’ failure to responsibly manage IDR plans is evidenced by the low rate of cancellation under the IDR – out of 4.4 million eligible borrowers, recent reports indicate that only 32 borrowers have ever had their student loans canceled through IDR.”

 

Earlier this month, Durbin, Brown, and Warren successfully urged President Biden to extend the pause on federally-held student loan payments, and called on the President to provide meaningful student debt cancellation.

 

Last year, Durbin led his colleagues in a letter to ED calling on Secretary of Education Miguel Cardona to consider additional measures to simplify and expand student loan discharge options and repayment plants as ED continues the rulemaking process regarding student debt relief. Among his proposed changes, Durbin advocated for streamlining IDR into a single plan that expands relief for borrowers.

 

A copy of the letter to ED is available here. A copy of the letter to the CFPB is available here and below.

 

April 14, 2022

 

Dear Director Chopra:

 

A recent NPR report found that student loan servicers mismanaged the income driven repayment (IDR) program, a program designed to help low-income borrowers, resulting in significant harm for borrowers with the lowest incomes. We urge the CFPB to investigate these reports and use all of its authorities to ensure borrowers are accessing IDR program benefits and receive the student loan forgiveness they have earned.

 

In 1992, Congress created IDR with the intention of ensuring low-income borrowers would not be burdened by federal student loan debt payments or trapped in perpetual repayment. In order to make monthly payments affordable, IDR plans limit borrowers’ monthly bills to a percentage of their discretionary income for a period of 20 or 25 years. At the end of the IDR repayment period, ED is required to automatically discharge the remaining student loan amount. However, in practice, extremely few borrowers have been able to obtain the promised student loan forgiveness through the IDR program.

 

A recent NPR investigative report found the IDR program is riddled with problems and mismanagement, even worse than the public previously understood, resulting in millions of borrowers becoming unable to obtain debt cancellation. According to the report, loan servicers have severely mismanaged IDR plans for decades, including by failing to properly count qualifying IDR payments and not accurately tracking borrowers’ progress towards cancellation. The report also revealed servicers did not “adequately track,” $0 monthly payments that qualify towards loan forgiveness. Since only borrowers earning less than 150% of the federal poverty line can make $0 qualifying payments and 48% of IDR borrowers have $0 monthly payments, the servicers’ mismanagement is harming the lowest-income borrowers the most.

 

The reported servicer negligence deserves further scrutiny, particularly given that IDR cancellation relies on student loan servicers to proactively notify borrowers when they are within six months of qualifying for loan cancellation, which depends on these servicers accurately counting payments and properly tracking progress towards cancellation. The loan servicers’ failure to responsibly manage IDR plans is evidenced by the low rate of cancellation under the IDR – out of 4.4 million eligible borrowers, recent reports indicate that only 32 borrowers have ever had their student loans canceled through IDR.

 

Borrowers who have been in repayment for more than 20 years have been relying on the program’s promise of debt cancellation. As the Department of Education works to rectify the harms already done to borrowers, we urge the CFPB to investigate the report’s findings to ensure servicers implement IDR with fidelity going forward. Thank you for your timely consideration of this matter.

 

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