Delayed processing of income-driven student repayment plans by servicers is hurting the ability of borrowers to secure debt forgiveness quicker, the Consumer Financial Protection Bureau (CFPB) said in a Friday report.
The government agency said that 450,000 of income-driven repayments applications were awaiting a resolution by the end of October of last year from a servicer for more than a month.
"The aggregate number of unprocessed income-driven repayment applications has risen consistently since the CFPB began receiving data in August 2023; as of the late October 2023, servicers reported over 1.25 million pending income-driven repayment applications," the CFPB said.
"The issues highlighted in today's report can have especially profound effects on borrowers pursuing forgiveness," a CFPB spokesperson told Newsweek on Friday. "Delays in income driven repayment processing and the increased strain on the servicers' customer service functions can leave borrowers in the dark about their progress towards earning forgiveness."
Read more: Student Loan Forgiveness Updates and FAQs: Who Qualifies and How To Apply
In its report, the CFPB suggested that employees working on such applications had on average more than 1,300 applications that were pending.
"The slowest servicer is taking, on average, five times longer to process an income-driven repayment application than the quickest servicer," the agency said. "Only one of the four servicers processed more income-driven repayment applications in the last reported period than it received, suggesting the application backlog will grow unless current trends are reversed."
The report comes after American borrowers have resumed repayments on their student debt, beginning with interest on the loans in September and with reimbursements on the principal restarting in October after a freeze during the pandemic.
The Biden administration has tried to cancel up to $20,000 of student loan debt, but that move was struck down by the Supreme Court last summer. The government has proposed an alternative approach of relieving some Americans from their debt through The Saving on a Valuable Education (SAVE) Plan, that aims to decrease monthly outlays of student debt by linking the payments to an individual's income and the size of their family, according to the Federal Student Aid office.
Applications that take more than a month can hurt borrowers, the CFPB said in its report. The delays may lead to more interest on the debt to accrue for borrowers as they await resolutions on their requests for such programs as the SAVE plan.
"Borrowers are commonly put on an administrative forbearance while their income-driven repayment application is pending and, depending on the type of forbearance applied, borrowers may not receive credit towards income-driven repayment or [public service loan forgiveness] cancellation during the months of this forbearance," the CFPB said Friday.
It added: "Delays in [income-driven] application processing may also cause borrowers to make payments that are larger than they can afford, causing financial strain or even increased indebtedness on other forms of credit, like credit cards."
The agency, which functions as an overseer on behalf of consumer rights, noted that its observation of the student loans servicing sector was ongoing.
"We will continue examining student loan servicers, monitoring of consumer complaints received about student loan servicers, and collaborating with federal and state partners, and enforcing the law where necessary," the CFPB said.
Update: 1/5/24, 5:48 p.m. ET: This article has been updated with comment from the CFPB.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
