Over 10 million Americans have defaulted on past due student loans that they struggle with. The majority of these student loans could have benefited from income-driven repayment plans. These plans are designed to relieve stress from borrowers and keep their federal loans from slipping into default.
Income-driven repayment plans allow borrowers with low income, high debt, or both to pay less than their standard payments each month. Depending on income, debt amount, and family size many borrowers qualify for zero dollar payments. They can make those payments until their financial situation improves so they can make their standard payments or should they have financial hardship for long enough they could be forgiven through giving enough zero dollar payments under an income-based repayment plan.
Unfortunately, most borrowers never hear about these repayment plans. This can be attributed to poor customer service as well as the loan servicers enrolling borrowers into less ideal, alternative plans. The loan companies are paid over $600 million a year by the government to manage these loan accounts and process monthly payments. Due to lack of incentive on the loan servicer’s end debt burdened borrowers are left in the lurch, often never knowing that there is a solution to their financial status until they can get back on their feet.
The government does not demand much from these companies which allows them to operate with little to no oversight. Thus, they haven’t been doing right by borrowers. There was a recent report by Consumer Financial Protection Bureau, who is the primary authority over the industry that showed how little these companies help borrowers. Given the fact that many borrowers reported to CFPB, Consumer Financial Protection Bureau, that the loan servicers fail to provide the most basic level of service to said borrowers. Reports have claimed the loan servicers would lose paperwork, misapply payments, as well as other general errors that would be difficult for borrowers to correct.
The aforementioned report drew from 30,000 public comments filed with the agency and suggests that servicers are leaving borrowers to drown in debt by giving them misinformation that pushes their loans toward default. Instead of explaining how income-based repayment plans work and how these plans protect the borrower’s credit, the loan servicers will opt to tell people their only option to either pay their loans in full or apply a forbearance to their loans. A forbearance simply pushes monthly payments back, but not without a downside. Loans under forbearance will continue to accumulate interest thus burying borrowers further in debt.
Last year, there was a lawsuit where Sallie Mae as well as its former subsidiary, Navient were sued by the Justice Department. The charges brought on the two loan servicers were that they had violated the Service members Civil Relief Act for almost a decade of denying borrowers who were serving in the military the 6% rate cap that they are entitled to for loans taken out before their service in the military began.
The CFPB, the Treasury Department, and the Department of Education are fighting and have recently agreed on a set of principles that they believe will help borrowers from crippling debt. The agreement calls for these servicer companies to be more transparent moving forward by providing consistent and accurate standards. Hopefully, handing down appropriate punishments should any loan servicer violate any of these provisions set in place.
In any case, it is important for borrowers to be looking into these income-driven repayment plans, and not to rely fully on their loan servicers to provide and meet all of the borrower’s needs.
Make sure to always check back with us at Ameritech Financial for more up to date information on student loans.
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