SEARCH TODAY'S NEWS ARCHIVES

House Dems to ED: Fix Collection, Servicing Issues for Defaulted Borrowers

By Brittany Hackett, Communications Staff

A group of House Democrats sent a letter to the Department of Education (ED) this week urging Secretary John B. King, Jr., to streamline access to income-driven repayment plans and address inadequacies in the collection and servicing processes for defaulted borrowers.

The letter, which was signed by 16 representatives and dated November 28, highlighted recent findings from the Consumer Financial Protection Bureau’s (CFPB) Student Loan Ombudsman that show close to one-third of student loan borrowers who successfully rehabilitate their loans will re-default within two years. The report also found that many of those borrowers would, under an income-driven repayment plan, be responsible for a monthly payment of $0, putting them at low risk of re-default.

“The high rate of re-default reveals a breakdown in the transition from rehabilitation to repayment and underscores the need to do more to connect at-risk borrowers with income-driven repayment plans,” the letter states.

The representatives asked ED to quickly issue updated sub-regulatory guidance for private collection agencies (PCAs) and loan servicers on the best ways to assist borrowers who have defaulted on their loans. Specifically, the letter said, the guidance should:

  • Encourage PCAs to share with defaulted borrowers “adequate information” about loan consolidation as a way out of default;
  • Establish a timeline and recommended action for PCAs to adhere to in helping borrowers rehabilitate their loans by submitting applications for income-driven repayment plans to their loan servicers;
  • Establish a uniform process for loan servicers to educate recently rehabilitated borrowers about income-driven repayment options and assist them in enrolling quickly; and 
  • Provideing recommendations to PCAs for informing defaulted borrowers about the closed-school loan discharge application and borrower defense to repayment processes, for those who may be eligible.

The representatives also asked ED to reevaluate the incentive structure that is currently in place for debt collectors, stating that it “does not take into account whether borrowers default after they rehabilitate their loans.”

According to the letter, debt collectors receive $1,710 for each rehabilitated loan, as well as a commission equal to about 20 percent of each monthly payment borrowers make while theythat are in rehabilitation. They are also paid “significantly less” in cases where a defaulted borrower chooses to consolidate his or her loans rather than undergo rehabilitation, the letter states.

The current incentive structure may give an indication as to why many borrowers who rehabilitate their defaulted loans are given insufficient support to transition to repayment, or why some borrowers are not aware they can get out of default through loan consolidation, according to the letter. The representatives asked that ED reevaluate its contracts before concluding competition for the Indefinite Delivery/Indefinite Quantity (IDIQ) contracts and Task Orders.

And finally, the representatives asked ED to work with the Internal Revenue Service (IRS) to create a process to automatically recertify borrowers enrolled in income-driven repayment plans each year, alleviating the burden placed on borrowers to provide their income and family size annually. The idea, which has bipartisan support in Congress, “would make it much easier for [borrowers] to continue making affordable payments,” as well as prevent re-default among low-income borrowers who have successfully rehabilitated their loans, the letter states.

The letter was signed by the following:

  • Bobby Scott (D-VA)
  • Suzanne Bonamici (D-OR)
  • Ruben Hinojosa (D-TX)
  • Susan A. Davis (D-CA)
  • Raul M. Grijalva (D-AZ)
  • Joe Courtney (D-CT)
  • Marcia Fudge (D-OH)
  • Jared Polis (D-CO)
  • Gregorio Kilili Camacho Sablan (D-Northern Mariana Islands)
  • Frederica S. Wilson (D-FL)
  • Mark Takano (D-CA)
  • Alma Adams (D-NC)
  • Hakeem Jeffries (D-NY)
  • Mark Desaulnier (D-CA)
  • Katherine Clark (D-MA)
  • Mark Pocan (D-WI)

 

Publication Date: 11/30/2016


You must be logged in to comment on this page.

Comments Disclaimer: NASFAA welcomes and encourages readers to comment and engage in respectful conversation about the content posted here. We value thoughtful, polite, and concise comments that reflect a variety of views. Comments are not moderated by NASFAA but are reviewed periodically by staff. Users should not expect real-time responses from NASFAA. To learn more, please view NASFAA’s complete Comments Policy.

Related Content

NASFAA Shares Feedback on College Cost Reduction Act with House Education and Workforce Committee Leadership

MORE | ADD TO FAVORITES

Fresh Start Web Center

MORE | ADD TO FAVORITES

VIEW ALL
View Desktop Version