Nearly all of the highest-risk student loan borrowers are not enrolled in federal repayment plans that may help them better manage payments –– and about half of those borrowers redefault, according to a new analysis from the Consumer Financial Protection Bureau (CFPB).
The analysis, published Tuesday, found that 9 in 10 of the highest-risk borrowers –– those who previously defaulted on a loan and then exited default –– are not enrolled in a federal repayment plan that can help them lower their monthly payments, such as income-driven repayment.
"Too many struggling borrowers fall through the cracks in a broken, outdated student loan system," said CFPB Director Richard Cordray, in a statement. "These people did everything that was asked of them to get back on their feet, only to end up deeper in debt. We will continue to work to make sure this industry provides borrowers with the kind of service they deserve."
The CFPB found that fewer than 2 percent of these borrowers enroll in an income-driven repayment plan immediately after exiting rehabilitation, and after one year 90 percent still had not enrolled through their loan servicers. Of those highest-risk borrowers who do not enroll in an income-driven repayment plan, about half end up back in default within three years. But nearly all of the highest-risk borrowers – 95 percent – who consolidate into a repayment plan within the first year out of rehabilitation do not redefault.
In a summary of the analysis, the CFPB said the data shows stakeholders –– including borrowers, taxpayers, and servicers –– would benefit "from a clearer, more streamlined process to help previously defaulted borrowers succeed over the long term, and to ensure borrowers avoid default in the first place."
"For far too many student loan borrowers, the dream of a fresh start turns into a nightmare of default and deeper debt," said CFPB Student Loan Ombudsman Seth Frotman, in a statement. "When student loan companies know that nearly half of their highest-risk customers will quickly fail, it's time to fix the broken system that makes this possible."
Publication Date: 5/17/2017