A new report from the Consumer Financial Protection Bureau found student loan borrowers are paying greater than $125 million in interest charges and that more than 8 million people have gone 12 months or more without making any sort of payment on their students loans.
According to a report covering the new research, the CFPB found that income-driven repayment plans, which help struggling borrowers prevent a default, aren’t as effective as they should be. According to the CFPB, the income-driven repayment plans are flawed and results with borrowers having no options to get out from under their student loan debt. According to the CFPB, one in three rehabilitated borrowers will go back into default after two years due to delays in processing their applications and because of communications issues. What’s more, the CFPB said hundreds of thousands of borrowers who would have a $0 monthly payment under the income-driven repayment plan end up in default because they didn’t know they were eligible for the plan. That results in them getting hit with over $125 million in interest charges.
Borrowers who submitted the proper information on their applications and have their paperwork in line for an income-driven repayment plan can also end up in default because some borrowers experienced delays that lasted for months to get approval. With the application not getting approved, the borrowers can end up in default while waiting for an answer on their income-driven repayment plan application.
According to the report, the CFPB said debt collectors are “incentivized” to get the borrowers to pay now instead of helping them find longer-term options, like an income-driven repayment plan. Debt collectors, according to the CFPB, get $40 for every $1 they collect. Because of that, borrowers aren’t alerted to other options that could help them.