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:
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:
Publication Date: 11/30/2016
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