Student loans

Lawmakers ask Education Department to overhaul ‘broken’ student loan program

The White House is under increased pressure to fix a federal program that public policy groups and consumer rights advocates say has failed to help millions of low-income student borrowers repay their loans as planned .

Today, the heads of the House and Senate Education Committees are urging the Department of Education to overhaul the ‘broken’ system of income-based repayment planswhich they say unfortunately failed to provide adequate debt relief and even promised the cancellation of the loan.

“The Department of Education should fix the broken safety net for low-income borrowers by addressing past failures and establishing a new income-focused repayment plan that keeps payments affordable, prevents debt from swell over time and provides a reliable path out of perpetual repayment.”, Sen. Patty Murray, D-Wash., and Rep. Bobby Scott, D-Va., written in a letter to Secretary of Education Miguel Cardona and shared Monday with NBC News.

The letter was written in anticipation of the Ministry of Education releasing proposed changes to how income-tested repayment plans would be administered.

Income-tested repayment was first introduced by Congress in the 1990s and allows borrowers to repay their federal student loans based on their income and family size. More than 9 million borrowers are enrolled in the programs, according to federal student aid data.

President Joe Biden has been the subject of growing demands from members of his own party to revise revenue-driven repayment plans as the White House tackles the broader problem of student debt. His administration this month announced a further extension of the suspension of payments on federal student loans – this time, until August 31 – as worries about inflation and rising gas prices rattle the country.

A Brookings Institution March Report, a public policy think tank, examined income-contingent repayment and found several lingering problems: many borrowers who would benefit from the program are never told about it; they face “bureaucratic, technical or legal difficulties” when having to recertify their income; and some borrowers end up “not making large enough payments to cover accrued interest, so they see their balances grow over time.”

Student borrower groups also point to what they say are other program failures. Since 2016, only 32 borrowers have had their remaining loans forgiven as allowed by the program because they have made the required amount of payments for 20 or 25 years – a tiny fraction compared to the 2 million borrowers who have been in repayment for 20 more years, advocacy groups have found.

A NPR investigation this month also reported that some federal student loan managers were not counting the number of payments borrowers were making under their income-tested repayment plans, as required, and had failed to inform proactively with borrowers when they qualified for loan forgiveness.

In their letter, Murray and Scott called on the Department of Education to extend the moratorium on federal student loan repayments until 2023 and use that time to simplify the income-based repayment process and “reduce the borrower confusion and administrative complexity”.

Lawmakers also made several suggestions, including making the program available to all federal student loan borrowers, including parents and graduate borrowers, and protecting borrowers’ income equal to at least 250% of the federal poverty level so that can prioritize basic needs.

The Ministry of Education did not immediately respond to the letter. Senior Republicans on the House and Senate Education Committees also did not immediately respond to requests for comment on how they thought the income-tested reimbursement plans might be revised.

Murray said that because student borrowers are “trapped in repayment when they should actually be done repaying their loans,” the federal government must “repair these past wrongs by making sure borrowers get the relief due to them”.