3 takeaways from NPR's investigation into a troubled student loan repayment program

An NPR investigation has found that a federal program intended to help low-income student loan borrowers, and eventually offer them debt cancellation, has failed to live up to its promise.

More than 9 million borrowers are currently enrolled in income-driven repayment (IDR) plans, which are designed to help people who cannot afford to make large monthly payments. The plans promise loan cancellation after 20-25 years. But documents obtained by NPR offer striking evidence that these plans have been badly mismanaged by loan servicers and the U.S. Department of Education.

In all, these records paint a breathtaking picture of IDR's failure, and cast a shadow over the federal student loan program. While the Biden administration did not make these problems, it must now address them as it weighs restarting repayment after a two-year pandemic pause.

In response to NPR's request for comment, an Education Department spokesperson said on Friday, "Borrowers place their trust in us to make sure these plans work the way they were intended to, and we intend to honor that trust. We are aware of historical issues with prior processes that had undermined accurate tracking of eligible payments. The current situation is unacceptable and we are committed to addressing those issues."

Here are three takeaways from NPR's investigation, which you can read in its entirety here:

1. Some servicers had no idea when borrowers qualified for forgiveness.

IDR plans offer borrowers a manageable monthly payment (as low as $0) as well as loan cancellation after 20-25 years of qualifying payments. It's the servicer's job to count how many payments a borrower has made and then notify them when they qualify for loan cancellation.

But a previously unreleased 2016 review of servicers, conducted by the Education Department's office of Federal Student Aid, found that three servicers – PHEAA, CornerStone and MOHELA – did "not have an IDR forgiveness payment counter" to track borrowers' progress toward cancellation.

Borrowers with accounts at PHEAA, for example, would have had to request a manual count of past payments to gauge their eligibility for cancellation.

This means some servicers didn't know if borrowers qualified for cancellation unless they were asked, by borrowers, to do a labor-intensive records review.

2. Mismanagement of IDR is especially harmful for borrowers with the lowest incomes.

Under IDR, a monthly payment of $0 for a borrower earning less than 150% of the federal poverty line should still count toward loan cancellation. But in the same 2016 review, officials warned, "zero ($0.00) IDR payments that qualify for forgiveness are not adequately tracked."

Nearly half of all IDR borrowers are making $0 monthly payments, according to a 2019 analysis by the Center for American Progress (CAP). Not adequately tracking those payments could delay or derail millions of the lowest-income borrowers on their way to loan cancellation.

3. Transferring borrowers between servicers is a game of telephone.

According to the documents obtained by NPR, moving borrower accounts is incredibly fraught. Borrowers' information is transferred via what's known as an EA27 file, and every time a file is transferred, data and context can be lost, and mistakes made. In fact, earlier versions of the EA27 didn't even include payment counts for certain IDR plans.

Now consider that nearly every borrower who could be eligible for cancellation under IDR in the next few years has had their accounts transferred at least once, when the federal government transitioned from one loan servicer to many. That means their current records, including the count of their progress toward cancellation, could be built on the sand of erroneous data.

NPR is committed to reporting on pressing issues that matter to you, like student loans. Sign up for our Education newsletter to stay up to date. You can support NPR's trusted, vital coverage by donating to your local NPR station today.

Copyright 2022 NPR. To see more, visit https://www.npr.org.