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Millions of student loan borrowers' debt unnecessarily spent years in forbearance

A MARTÍNEZ, HOST:

The fate of President Biden's sweeping plan to erase federal student loan debt is now in the hands of the Supreme Court. But what if we told you, completely unrelated to that plan, the Biden administration recently began what it's calling an account adjustment that could still help millions of borrowers with their student debts, a move that was triggered in part by an NPR investigation? Reporter Cory Turner led that investigation. Cory, so what can you tell us about this account adjustment that's now getting started?

CORY TURNER, BYLINE: So the U.S. Department of Education is going to review the loan histories of most federal student loan borrowers. It is a huge undertaking, A, that will carry them essentially through the summer. And the reason, in the department's own words, is to, quote, "remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers." This review is expected to trigger loan forgiveness for tens of thousands of people and bring millions more closer to having their loans erased.

MARTÍNEZ: So it does sound like a very big job. How are they going to do this?

TURNER: Well, they're using this thing called income-driven repayment, or IDR. It's a kind of safety net program that ties a borrower's monthly payments to how much money they make. So the less you earn, the less you have to pay each month. It also comes with a really important promise from the government that as long as a borrower pays what the Ed department thinks is reasonable, even if it's just 10 bucks a month, then Ed will erase whatever's left after 20 years for undergrad debts and generally 25 years for grad debts.

Here's the problem, A. For years, income-driven repayment was badly mismanaged by Ed and its loan servicers, making it really hard for borrowers to access. And so hardly anyone has qualified for that forgiveness. So now the department is trying a kind of do-over, reviewing all government-held loans and offering that promise of eventual loan forgiveness under IDR to anybody who might benefit retroactively. In a statement, the department told me it is committed to ensuring these programs, quote, "are administered fairly and effectively and that borrowers are not left with lifelong burdens of debt."

MARTÍNEZ: What kind of mismanagement was hurting borrowers?

TURNER: Yeah, so borrower Phoema Dubra has a pretty common story of how things went wrong. She took out loans to go to college and then to get her master's from Ole Miss to become a speech language pathologist.

PHOEMA DUBRA: It's the first time you hear a child say something that they've never said before, or the first time a child says, Mama. And I've cried with parents, I've held hands with parents. You know, it's special.

TURNER: It's a special job, she told me, that didn't pay well at the start. But back then, Dubra, like lots of borrowers, didn't know about income-driven repayment. She says she would call her loan servicer and say, I can't afford my monthly payment. Is there any way to lower it? And she clearly remembers their answer.

DUBRA: No. Your payment amount is $700. And it's like, OK, well, I don't have it. Oh, well, you can pay whatever you would like, but it's going to report to your credit. So if you're not going to make that full payment every month, then you might as well just put them into forbearance.

TURNER: And here's the problem, A. Forbearance pauses your monthly payments, but interest keeps growing, says Dominique Baker. She's an associate professor of policy at Southern Methodist University.

DOMINIQUE BAKER: When you come out of forbearance, the interest that was accruing the entire time that your payments were stopped gets turned into principal. And so very quickly, people's loan amounts can balloon.

TURNER: And so what seemed like a life preserver was, in reality, pulling Phoema into deeper and deeper water. And this is part of the mismanagement that we were talking about earlier - borrowers spending years in forbearance when they could have and probably should have been in an income-driven repayment plan. In fact, when Phoema did finally get on IDR and began repaying her loans, she had even more to pay off - now about $80,000.

DUBRA: It makes me very angry that people say, well, you just got to pay them back. You went to school, you owe this money. I've been paying them back for a long time. And it's hard, you know, and I'm thankful I'm in a position where I can make payments. But I've been in a position where I couldn't and wanted to but couldn't.

MARTÍNEZ: So, Cory, then - OK, why were servicers using forbearance instead of helping borrowers in these income-driven plans?

TURNER: Oh, that is such a big question. The short answer is because enrolling borrowers in these plans was not as easy as putting them into forbearance. I spoke with Travis Hornsby, who runs a student loan consulting website called Student Loan Planner. He says student loan servicers generally get paid a fixed amount per borrower.

TRAVIS HORNSBY: I think you just have to look at incentives. So a call putting somebody into forbearance might be a couple of minutes. Explaining income-driven repayment to a borrower, however, it could take five, 10 minutes, which if you scale that up to millions of people, costs millions of dollars to the bottom line.

MARTÍNEZ: And do we know how many borrowers there are out there like Phoema?

TURNER: A lot. According to federal data obtained by NPR, in the decade before the pandemic payment pause, nearly 12 million borrowers, A, were in forbearance for at least 12 straight months, a whole year. And nearly 5 1/2 million borrowers, including Phoema Dubra, spent at least three years in forbearance. And that is even though this entire time some form of income-driven repayment was widely available.

MARTÍNEZ: You know, I remember your reporting earlier this year, Cory, that even borrowers who did get into that income-driven plan still often ran into a lot of problems.

TURNER: Yeah, our investigation in April showed some servicers weren't keeping track of how close borrowers were to loan forgiveness. Also, some borrowers weren't getting credit for all their payments, or they were even losing months of credit when they were transferred from one servicer to another. After our reporting came out, members of Congress called for an investigation. And later that month in April, the department announced this big retroactive overhaul that's now getting started.

MARTÍNEZ: All right. So what else do borrowers need to know about this overhaul?

TURNER: Yeah, a few things. People with federal loans that are still held by commercial lenders will not qualify unless they consolidate their loans. This is important. They need to do that before May 1st. Parent Plus loans should also qualify for forgiveness after 25 years. And borrowers like Phoema, who spent long chunks of time in forbearance or sometimes deferment, much of that time is now going to count toward cancellation.

Departments also are going to give credit for some of the failures that we highlighted in our investigation. So, again, using that promise of loan forgiveness after 20 or 25 years, the department expects to forgive the loans of 40,000 borrowers at least, and that more than 3 1/2 million people are going to get at least three years closer to forgiveness, A.

MARTÍNEZ: That's NPR's Cory Turner. Cory, thanks a lot.

TURNER: You're welcome. Transcript provided by NPR, Copyright NPR.

A Martínez is one of the hosts of Morning Edition and Up First. He came to NPR in 2021 and is based out of NPR West.
Cory Turner reports and edits for the NPR Ed team. He's helped lead several of the team's signature reporting projects, including "The Truth About America's Graduation Rate" (2015), the groundbreaking "School Money" series (2016), "Raising Kings: A Year Of Love And Struggle At Ron Brown College Prep" (2017), and the NPR Life Kit parenting podcast with Sesame Workshop (2019). His year-long investigation with NPR's Chris Arnold, "The Trouble With TEACH Grants" (2018), led the U.S. Department of Education to change the rules of a troubled federal grant program that had unfairly hurt thousands of teachers.