It seems that nobody is quite sure what’s happening with the student loan program right now.
On Friday, a group of 25 Senate Democrats wrote to Secretary of Education Linda McMahon asking for more information about her agency’s February decision to remove the online applications for several popular income-driven repayment plans. The move has created mass uncertainty for millions of borrowers, in part because it has prevented many from filling out the annual forms necessary to keep their payments from suddenly ballooning.
“Borrowers have relied on many of these plans for decades and this sudden and reckless action means millions of borrowers have fewer repayment options available and are unsure of what to do in order to manage their debt,” states the letter, which was led by Oregon Sen. Ron Wyden and Vermont Sen. Bernie Sanders.
The Department of Education did not respond to a request for comment from Yahoo Finance. But the letter underscores the extent to which policymakers across Washington remain in the dark about the department’s plans. Consumer groups remain equally flummoxed.
“We’re trying to get the Department of Education to just provide any sort of guidance to borrowers and the people who work with borrowers about what they’re doing, how long it’s going to go on for, and what borrowers can do in the meantime,” Abby Shafroth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, told Yahoo Finance. “I’d say the biggest problem right now is the lack of information.”
Late last month, the Department of Education shuttered its online application portal for income-driven repayment plans, which cap what borrowers owe each month at a portion of their earnings. In a short note posted to the top of Studentaid.gov, the agency said it removed the forms in response to a federal appeals court ruling that upheld and expanded a pause on former President Biden’s SAVE plan, which several Republican-led states have sued to end.
Read more: What is an income-driven repayment plan?
By closing the online forms, the department also blocked access to all of its other income-driven plans, which use the same application but were not part of the litigation. Shortly after, the Washington Post reported that the Education Department had sent a memo to student loan servicers instructing them to stop accepting or processing any pending IDR applications for 90 days. According to Monday’s Senate letter, there are approximately 1 million outstanding applications.
As a result of the pause, former students who are having trouble paying their loans each month do not have access to apply for more manageable repayment options, leaving them at greater risk of default and its financial consequences, such as lower credit scores.
The freeze is also causing trouble for borrowers who are currently enrolled in income-driven repayment plans and are nearing the deadline to send in their annual recertification paperwork reporting their incomes for the past year. Those who fail to do so are essentially bounced back to a standard 10-year repayment plan, which can cost many times more per month, and have their outstanding interest added back to their principal. Borrowers also can’t make progress toward Public Service Loan Forgiveness unless they remain on an IDR plan. In its memo ordering servicers to pause IDR processing, the department also reportedly told them to stop accepting recertifications for 90 days.
Shafroth said her group has “heard rumors” that the administration is planning to push back recertification deadlines so that students can remain on IDR. “But if they have, they haven’t made that information public, and they haven’t told borrowers that,” she said. The website “The College Investor” reported Friday that the administration intends to push back the recertification deadlines, citing “sources familiar with the matter.”
The roughly 8 million borrowers who enrolled in Biden’s SAVE plan currently have their loans in an interest-free forbearance while litigation continues and do not need to update their income until 2026. But another 4.5 million are still in other income-driven plans that, as of now, require recertification, including Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn. Those borrowers can still request a normal forbearance from their servicers, but interest will accrue while their loans are paused.
Since closing off its IDR applications, the Education Department has provided just one update to borrowers, announcing that they could send in paper applications for loan consolidations. In their letter Monday, Democrats asked for basic information, such as how long the department plans to maintain its IDR application pause, and whether recertification will actually be extended.
On Reddit’s forum dedicated to student loans, borrowers have been asking each other for advice on how to deal with the processing pause and sharing stories about having attempts to recertify their loans rebuffed by loan servicers.
As one user put it: “This just all sucks, and I really hope y’all don’t have renewal dates coming up soon.”
Jordan Weissmann is a senior reporter at Yahoo Finance.
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Source: finance.yahoo.com