A recent government watchdog report revealed stark failures in a student loan forgiveness program run by the federal government, and the country’s top student loan official says the findings were “really inexcusable” while reiterating a commitment to address the issue.
The Government Accountability Office (GAO) report highlighted how an increasing number of student loan borrowers who could have their loans canceled under existing laws may miss out because of incompetence in the program.
“I mean, this is really inexcusable,” Richard Cordray, chief operating officer at Federal Student Aid (FSA), which is an agency within the Education Department (ED), told Yahoo Finance in an exclusive interview (video above). “But what's done is done. And what we're trying to do here is take account of it and make adjustments for it as best we can.”
FSA manages outstanding federal student loans, so there's a lot at stake when it comes to errors made over the years. And as of June 1, 2021, according to the GAO report, around 7,700 student loans were due to be forgiven under existing rules — but ED had only approved 157 loans to actually be discharged.
"Until Education takes steps to address such errors, some borrowers may not receive the IDR forgiveness they are entitled," the report stated. "This risk will increase as Education data show loans potentially eligible for IDR forgiveness will climb to about 1.5 million loans by 2030."
IDR plans allow student loan borrowers to drop their monthly payments to as low as $0 if their income dips below a certain threshold. If they complete 10, 20, or 25 years of payments, depending on their plan, they qualify to have the rest of their debt written off by the federal government.
The IDR initiative was implemented by the Obama administration to tackle rising student loan debt. GAO estimated that $500 billion in outstanding federal Direct Loans are being repaid by borrowers through IDR.
The GAO found a lack of data, which hindered accurate payment counts and led to confusion over debt cancellation.
Roughly 70,300 loans had been in repayment long enough to possibly qualify for forgiveness as of September 1, 2020. Of these loans, 62,600 did not qualify for forgiveness, including 2,700 that were in default.
Another 7,700 loans that were in repayment — around 11% of the loans analyzed — could be "potentially eligible" for IDR forgiveness, but the government's repayment data did not provide enough information on why these loans had not been forgiven back in September 2020. ED approved cancellation for 157 loans under IDR as of June 1, 2021.
“First of all, I think it was really important for us to face up squarely to what the GAO found — they were right,” Cordray said. “For many years, at FSA in the Department of Education, there was no close attention [paid] to this program because it was always something that seemed far, distant into the future. … people were very casual … the record-keeping was fairly poor. The transmission of records from one loan servicer to another was not overseen vigorously."
A recent NPR investigation detailed the mismanagement of the payment count, including how paperwork often went missing when loans transferred from one servicer to another over the years.
FSA has since announced one-time measures to remedy those who have had their payments undercounted or have spent many months in forbearance.
“We are going to be making a number of adjustments there to make it right for borrowers as best we can,” Cordray said. “And we are going to make sure that as we go forward, that those records are being monitored closely and accurately, as they should have been all along.”
The moves are expected to push 40,000 borrowers on Public Service Loan Forgiveness to immediately be granted loan forgiveness, and 3.6 million closer to the finish line.
Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.
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