Despite the existence of student loan forgiveness, 2 million people have been paying student loans for more than 20 years.
Here’s what you need to know — and what it means for your student loans.
A new report shows that in the history of income-driven repayment plans, only 32 people have ever received student loan cancellation. That’s not a typo. Literally 32 people. According to the latest student loan debt statistics:
- There are 45 million student loan borrowers.
- Collectively, they owe $1.7 trillion in student loan debt.
- 8 million student loan borrowers are currently enrolled in an income-driven repayment plan.
- 2 million student loan borrowers have been paying student loans for more than 20 years—and haven’t gotten any student loan cancellation.
- Only 32 have received student loan forgiveness through an income-driven repayment plan.
Why? The National Consumer Law Center and Student Borrower Protection Center claim, among other things, that student loan servicers failed to help steer borrowers into the correct income-driven repayment plans. As a result, student loan borrowers are still paying student loans when they could have received student loan cancellation.
An income-driven repayment plan—which first became available to student loan borrowers in 1995—bases your monthly federal student loan payment on your discretionary income, family size and state of residence. There are four types of income-driven repayment plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR). Here’s the promise for student loan cancellation: after 20 years (undergraduate student loans) or 25 years (graduate student loans) of monthly student loan payments, you can get student loan cancellation for your remaining student loan balance.
However, despite this promise, 2 million student loan borrowers have been paying federal student loans for at least 20 years and haven’t received student loan forgiveness. Whether it’s being enrolled in a sub-optimal student loan repayment plan, bad advice from a student loan servicer, or a confusing student loan repayment system, some student loan borrowers are without relief. One bright spot: the new stimulus bill makes student loan cancellation of your remaining student loan balance tax-free through December 31, 2025. While most borrowers won’t qualify for student loan forgiveness by 2025, Congress has the option to extend tax-free student loan forgiveness or make student loan forgiveness tax-free permanently.
Student loan borrowers missed out on student loan cancellation
According to the report, widespread errors and bad actions from student loan servicers have disproportionately hurt low-income student loan borrowers, caused student loan borrowers to miss out on student loan cancellation, and exacerbated gender and racial disparities. The authors argue that:
- Low Income Borrowers Suffered Financially: Student loan servicers systematically steered borrowers into forbearance rather than income-driven repayment plans. Forbearance doesn’t lead to student loan cancellation, so low-income borrowers, in particular, ended up with a higher cost student loan repayment option.
- Student Loan Servicers Didn’t Communicate Properly: Navient, one of the nation’s largest student loan servicers, allegedly didn’t communicate with student loan borrowers about the need to recertify income annually to get the most accurate monthly student loan payment. The Consumer Financial Protection Bureau (CFPB) found that 6 in 10 student loan borrowers didn’t meet deadlines to recertify income annually. As a result, student loan borrowers didn’t stay enrolled in income-driven repayment and didn’t qualify for student loan cancellation. A judge recently ruled that Navient misled student loan borrowers.
- Widespread Student Loan Servicing Errors: Student loan servicers allegedly engaged in “unlawful paperwork processing delays, inaccurate denials, lost paperwork, and insufficient information or guidance.” As a result, student loan borrowers may have lost money or missed out on student loan cancellation.
Student loan cancellation: what it means for your student loans
The report offers four solutions to fix student loans and student loan cancellation:
1. Review Income-Driven Repayment
All student loan accounts should be reviewed for accuracy to ensure that all student loan borrowers who qualify for student loan cancellation can get it.
2. Focus on low-income student loan borrowers
Student loan cancellation should be delivered equitably and should focus on the needs of the most vulnerable student loan borrowers.
3. Cancel student loans for all borrowers after 20 years
If you have student loan debt after 20 years, the U.S. Secretary of Education should cancel all your student loan debt.
4. Fix income-driven repayment plans
Simplify student loan repayment so that student loan borrowers who are enrolled in an income-driven repayment plan can get student loan cancellation. President Joe Biden has a student loan plan to make income-driven repayment more affordable and get student loan cancellation for more student loan borrowers.
Pay off student loans
As you navigate student loan repayment, here are some potential options to consider: