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CFPB releases consumer advisory for student borrowers notifying them of April deadline to cancel
On March 11, the CFPB published a consumer advisory notifying student loan borrowers that they may have an opportunity to cancel or receive credits toward the cancellation of their student loans but some borrowers will need to consolidate their loans by April 30 in order to obtain the benefit. The Department of Education has implemented a “one-time adjustment” to help borrowers receive credit toward federal student loan cancellation. This adjustment is designed to enable the counting of more payments, including all payments made on federally managed loans since July 1, 1994, as well as certain periods of deferment, economic hardship, and forbearance. Generally, federal student loans are eligible for Income Driven Repayment (IDR) plans, which offer loan cancellation after 10, 20, or 25 years of qualifying payments, or after 10 years for those pursuing Public Service Loan Forgiveness (PSLF), provided other eligibility criteria are met. The Bureau also noted that consolidation is free, warning against scammers who would charge for that service.
Student loan servicer fined $1.8 million by Massachusetts Attorney General
On January 11, the Massachusetts Attorney General (AG) announced a $1.8 million settlement with a student loan servicer, to resolve allegations that the company did not properly communicate Income-Driven Repayment (IDR) plan renewals to borrowers. According to the settlement, IDR plans are a “helpful tool for managing unaffordable federal student loan debt and avoiding the consequences of default… [and respondent] is required to follow specific procedures intended to ensure that borrowers are able to successfully navigate the enrollment and annual recertification processes required for IDR.” The AG alleged that the respondent violated state law by sending written notices that did not meet regulatory requirements and failed to send required notices.
Under the terms of the settlement, respondent will (i) pay $1.8 million; (ii) include certain disclosures in renewal notice correspondence to borrowers; (iii) comply with requirements for FFELP loans owned by the DOE and enrolled in certain repayment plans; (iv) clearly disclosure to certain borrowers that failure to timely provide certain information about income or family size will result in increased monthly payments; and (v) retain copies of each written communication that it sends to borrowers regarding their IDR plans. The student loan servicer enters into this agreement for settlement purposes only (without admission).
District Court dismisses suit challenging Biden’s student debt relief plan
On August 14, the U.S. District Court for the Eastern District of Michigan dismissed without prejudice a lawsuit filed against the federal government aimed at blocking the Biden administration’s effort to provide debt relief to student borrowers (covered by InfoBytes here). U.S. District Judge Thomas L. Ludington held that the plaintiffs lacked standing because they failed to plausibly demonstrate how the government’s plans would impact their efforts to recruit participants as qualified employers under the Public Service Loan Forgiveness program. The court detailed that “[Plaintiffs] merely make vague and conclusory statements that some ‘undisclosed’ number of borrowers will receive credit toward loan forgiveness for some periods of forbearance” but “do not allege that any current employee received Adjustment credit.” Furthermore, any such “hypothetical injur[y]” would be traceable to “Plaintiffs’ own employees or prospective employees, not the Adjustment.” Because there was no standing, the court dismissed the complaint without prejudice and denied the plaintiffs’ motion for a temporary restraining order and preliminary injunction as moot.
Plaintiffs file suit challenging Biden’s latest student debt relief plan
On August 4, two nonprofit entities filed a lawsuit against the federal government aimed at blocking the Biden administration’s recent effort to provide debt relief to student borrowers. The administration’s efforts were implemented in response to the Supreme Court’s June 30 decision striking down the DOE’s student loan debt relief program that would have canceled between $10,000 and $20,000 in debt for certain student borrowers (covered by InfoBytes here). The lawsuit, filed in the U.S. District Court for the Eastern District of Michigan, targets the administration’s efforts to credit borrowers participating in the Public Service Loan Forgiveness (PSLF) plan and Income-Driven Repayment (IDR) plan by providing credit for periods when loans were in forbearance or deferment, which would affect more than 804,000 borrowers, forgiving approximately $39 billion in loan payments, according to the DOE.
As an initial matter, plaintiffs assert that they are injured by the administration’s actions because, as 501(c)(3) nonprofit organizations, they benefit from the PSLF program by allowing them to “attract and retain borrower-employees who might otherwise choose higher-paying employment with non-qualifying employers in the private sector.” Thus, according to plaintiffs, cancellation of PSLF loans would reduce the incentive for borrowers to work at public service employers and the decision “unlawfully deprives [PSLF] employers of the full statutory benefit to which they are entitled under PSLF.”
Plaintiffs accuse the administration of putting the plan on an “accelerated schedule apparently designed to evade judicial review.” The plaintiffs assert that the DOE lacks authority to classify “non-payments as payments,” and that the statutes for the PSLF and IDR programs require actual payments to qualify for forgiveness under each plan. The suit brings four claims against the administration: (i) violation of the Appropriation Clause of the U.S. Constitution by canceling debt that Congress did not authorize; (ii) violation of the Administrative Procedure Act (APA) by issuing a final agency decision without appropriate statutory authority; (iii) violation of the APA by taking an arbitrary and capricious agency action by failing to “explain why [DOE] has changed its policy from not crediting non-payments during periods of loan forbearance to crediting such payments for purposes of PSLF and IDR forgiveness” and “entirely fail[ing] to consider the cost to taxpayers of crediting periods of forbearance toward PSLF and IDR forgiveness,” among other reasons; and (iv) violation of the APA by failing to undertake notice-and-comment procedures in implementing the changes.
States support DOE’s overhaul of IDR plans
On February 13, a coalition of state attorneys general led by California and Massachusetts submitted a letter in support of the Department of Education’s (DOE) proposed changes to income-driven repayment plans (IDR) for federal student loan borrowers. As previously covered by InfoBytes, last month the DOE announced a notice of proposed rulemaking (NPRM) designed to reduce the cost of federal student loan payments. According to the NPRM, the DOE is proposing to amend the regulations governing income-contingent repayment plans by amending the Revised Pay as You Earn (REPAYE) repayment plan, and is looking to restructure and rename the repayment plan regulations under the William D. Ford Federal Direct Loan Program, including combining the Income-Contingent Repayment and the Income-Based Repayment (IBR) plans under the umbrella term of IDR plans. The NPRM would ensure that a borrower’s balance would not grow due to accumulation of unpaid interest if the borrower otherwise makes the monthly payments, and would also establish that for individuals who borrow $12,000 or less, loan forgiveness can occur after making the equivalent of 10 years of payments. That period increases by one year for each additional $1,000 that is borrowed.
In their letter, the states expressed support for the DOE’s NPRM, but urged the department to take further steps to support struggling borrowers. The states urged the DOE to expand the scope and reach of the proposed reforms by, among other things, creating a simple path for borrowers in default to enroll in IBR or REPAYE, counting all past forbearance and repayment periods and certain deferment periods towards borrowers’ loan forgiveness, making Parent PLUS loans eligible for REPAYE, and expanding the reach of its reforms to “provide more retroactive relief” to borrowers impacted by widespread servicing errors that prevented them from enrolling in IDR. According to the letter, the DOE should also raise the discretionary income threshold to make debt more manageable for borrowers with the greatest need, eliminate the reverse amortization of IDR loan balances, shorten the period in which borrowers must make payments to receive forgiveness under REPAYE, provide viable repayment options, and automatically enroll delinquent borrowers in IDR plans before they face negative credit reporting and default, among other measures.
Education Dept. releases IDR proposal
On January 10, the Department of Education (DOE) announced a notice of proposed rulemaking (NPRM) to reduce the cost of federal student loan payments. According to the DOE, the regulations fulfill President Biden’s plan to provide student debt relief for approximately 40 million borrowers and to make the student loan system more manageable for student borrowers. As previously covered by InfoBytes, the three-part debt relief plan was announced in August to provide, among other things, up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE, and up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples. Plaintiffs, whose loans are ineligible for debt forgiveness under the program, sued the DOE and the DOE secretary claiming the agency violated the Administrative Procedure Act’s notice-and-comment rulemaking procedures and arbitrarily decided the program’s eligibility criteria. Plaintiffs further contended that the DOE secretary does not have the authority under the HEROES Act to implement the program. Specifically, the NPRM would establish that those making less than $30,577 as an individual or a family of four making less than $62,437 would have their monthly payments reduced to $0.
According to the NPRM, the DOE is proposing to amend the regulations governing income-contingent repayment plans by amending the Revised Pay as You Earn (REPAYE) repayment plan. The NPRM noted that the DOE is looking to restructure and rename the repayment plan regulations under the William D. Ford Federal Direct Loan Program, including combining the Income Contingent Repayment (ICR) and the Income-Based Repayment (IBR) plans under the umbrella term of IDR plans. The NPRM would ensure that a borrower’s balance would not grow due to accumulation of unpaid interest if the borrowers otherwise make their monthly payments. Additionally, the NPRM would also establish that for individuals who borrow $12,000 or less, loan forgiveness can occur after making the equivalent of 10 years of payments. That period increases by one year for each additional $1,000 that is borrowed. The DOE released a Fact Sheet on increasing college accountability, which clarifies information on identifying the lowest-financial-value programs, protecting students and delivering value through greater accountability, increasing collaboration with accreditors, and building a record of action.
The DOE also released a request for information (RFI) to solicit comments on identifying the best ways to calculate the metrics that may be used to identify low-financial-value programs and inform technical considerations. Finally, the DOE released a Fact Sheet on transforming IDR. Among other things, the Fact Sheet discusses decreasing undergraduate loan payments, stopping unpaid interest accumulation, and lowering the number of monthly payments required to receive forgiveness for borrowers with smaller loan balances. Comments are due 30 days after publication in the Federal Register.
DOE announces PSLF changes
On October 25, the Department of Education (DOE) announced executive actions intended to bring loans managed by the DOE closer to forgiveness, including credit toward the Public Service Loan Forgiveness (PSLF) Program for borrowers who have qualifying employment. According to the DOE, these actions will provide borrowers with many of the same benefits already going to those who have applied for PSLF under temporary changes (known as the Limited PSLF Waiver), before its October 31, 2022 end date. The announcement further noted that borrowers with Direct Loans or DOE-managed Federal Family Education Loans (FFEL) will receive credit toward forgiveness on income-driven repayment (IDR) for all months spent in repayment, including payments prior to consolidation, regardless of whether they made partial or late payments or are on a repayment plan. Borrowers will also receive credit for specific periods in deferment and forbearance. Even with these actions, the DOE encouraged borrowers to take the necessary steps to apply for the Limited PSLF Waiver by October 31. The DOE also released a Fact Sheet outlining benefits for borrowers who have Direct or DOE-managed FFEL loans as well as Direct Loan borrowers seeking PSLF.
Democrats want PLUS loans in relief plan
On September 12, eight Senate Democrats sent a letter to President Biden, urging him to extend student-loan debt relief to roughly 3.6 million borrowers under the Parent Loan for Undergraduate Student (PLUS) loan program. Biden’s debt relief plan instructed the Department of Education (DOE) to, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; and (iii) propose a new income-driven repayment (IDR) plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income. Additionally, for IDR plans, Biden’s August announcement instructed the DOE to propose a rule to, among other things, reduce the amount that borrowers have to pay each month for undergraduate loans from 10 percent to 5 percent. The Senators expressed their concern that Biden’s recent actions do not appropriately cover Parent PLUS borrowers and urged his administration and the DOE to “to incorporate Parent PLUS borrowers in any administrative improvements to federal student loan programs, including the Public Service Loan Forgiveness and Income-Driven Repayment programs, extensions or creation of waivers, and in the implementation of executive actions to provide student debt relief.”
Biden announces student debt cancellation
On August 24, President Biden announced a three-part plan for student loan relief. According to the Fact Sheet, the cumulative federal student loan debt is around $1.6 trillion and rising for more than 45 million borrowers. The President announced that the Department of Education (DOE) will, among other things: (i) provide up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the DOE; (ii) provide up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples; (iii) propose a new income-driven repayment plan and cap monthly payments for undergraduate loans at 5 percent of a borrower’s discretionary income; and (iv) “propos[e] a rule that borrowers who have worked at a nonprofit, in the military, or in federal, state, tribal, or local government, receive appropriate credit toward loan forgiveness.” For income-driven repayment, Biden announced that the DOE is proposing a rule to, among other things: (i) reduce to 5 percent from 10 percent the amount that borrowers have to pay each month for undergraduate loans; (ii) guarantee that borrowers making less than 225 percent of the federal minimum wage are not required to make payments on their federal undergraduate loans; (iii) forgive loan balances after 10 years of payments, instead of 20 years, for borrowers with original loan balances of $12,000 or less; and (iv) cover the borrower’s unpaid monthly interest so that no borrower’s loan balance will grow when making monthly payments, “even when that monthly payment is $0 because their income is low.” The Fact Sheet also noted that if all borrowers claim the relief to which they are entitled under this plan, these actions “will [p]rovide relief to up to 43 million borrowers, including cancelling the full remaining balance for roughly 20 million borrowers,” will benefit primarily low- and -middle income borrowers, assist borrowers of all ages, and help narrow the racial wealth gap and promote equity by targeting those with the highest economic need.
The same day, the DOE announced a final extension of the pause on student loan repayment, interest, and collections through December 31. As previously covered by InfoBytes, in April, Biden extended the moratorium on collecting student loans through August 31, about which the DOE stated will allow “all borrowers with the paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.”
Earlier this week, the DOE announced that it will provide over $10 billion in debt relief for over 175,000 borrowers in 10 months through the Public Service Loan Forgiveness (PSLF) program. The recent announcement follows changes the DOE announced in October 2021 (covered by InfoBytes here) that, among other things, gave qualifying borrowers a time-limited PSLF waiver that allowed all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. The recently announced changes provide that student borrowers receive credit for payments made on loans from FFEL, Perkins Loan Program, and other federal student loans. To qualify for the program under the temporary changes, such borrowers must apply to consolidate their loans into a Direct Consolidation Loan by October 31. Additionally, the DOE announced that “under the temporary changes, past periods of repayment count whether or not borrowers were on a qualifying repayment plan or whether or not borrowers made payments.” To date, $32 billion in student loan relief has been approved for over 1.6 million borrowers.
Education Dept. rolls out new plan for IDRs
On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:
- To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
- Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
- FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
- Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
- FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.
In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on StudentAid.gov beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”