Coordination between federal agencies would help millions repay student loans

Coordination between federal agencies would help millions repay student loans
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When it comes to federal student loans, there’s good news and bad. The bad news first: The complex, outdated repayment system often undermines borrowers’ efforts to repay their debt. One in 5 of the 43 million Americans with federal student loans is in default and millions more are behind on their payments.

Now the good news: If Congress acts, this situation can be dramatically improved with a simple fix. Federal lawmakers can direct the Internal Revenue Service (IRS) to share relevant borrower data — with appropriate privacy protections — with the U.S. Department of Education to ensure that borrowers can more easily access payment plans that promote repayment success without having to supply the same information to the federal government multiple times.

Research demonstrates that income-driven repayment plans, which set affordable monthly payments based on a borrower’s income and family size, can play an important role in reducing delinquency and default. However, borrowers report that getting into such plans — and staying enrolled — is difficult because the application process is redundant and overly complex.

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For example, borrowers must submit their income and family size information annually, which in many cases, duplicates data already supplied in annual income tax filings. Submission or processing delays are common and can cause borrowers to miss this deadline, and inaccurate information can result in miscalculated monthly payment amounts.

This combination of unnecessary duplication and complexity means that the system does a poor job of delivering prompt and extended relief for financially stressed borrowers and protecting taxpayers’ investment in higher education. According to federal data, between 2013 and 2014 more than half of borrowers in income-driven plans did not re-certify by the deadline.

As a result of such delays, monthly payments go up and any unpaid interest capitalizes, increasing the overall size of the loans: Nearly a third of borrowers who did not re-certify on time had their loans go into hardship-related forbearance or deferment, statuses that allow borrowers to suspend payments until their financial circumstances improve but also can lead to further balance growth. 

Congress’ watchdog agency, the U.S. Government Accountability Office (GAO), also recently made the case for solving this breakdown. In a report released in late July, the GAO suggested that the Department of Education could benefit from pursuing access to additional federal data and to private data matching to improve utilization of income-driven repayment plans.

This coordination would eliminate the need for many borrowers to supply additional documentation during the income-driven repayment plan enrollment and recertification processes and ensure that the information is accurate, reducing submission and processing delays, errors, and inaccurate payment amounts. 

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In its comments on the GAO report, the department called on Congress to pass legislation directing the IRS to share relevant taxpayer data. In fact, the Senate passed such a bill with support from both parties during the last Congress, and similar legislation has been introduced in the House. 

But today, that progress is stalled. Congress needs to act as soon as possible to help the more than 8 million borrowers already enrolled in income-driven plans—and millions more in the future. Requiring agencies in the same federal government to coordinate with one another means everybody wins.

Sarah Sattelmeyer manages The Pew Charitable Trusts’ project on student borrower success.