People are having a difficult time enrolling in the government’s most generous student loan repayment plan as the companies hired to manage the process contend with a backlog of applications, according to consumer advocates.
It’s been almost four months since the Obama administration rolled out the repayment plan, known as Revised Pay as You Earn or REPAYE, which caps monthly bills to 10 percent of borrowers’ income and forgives the debt after 20 years of payment. Before then, those terms were only available to people with very low income relative to their debt and who took out loans after 2007. Now anyone with a direct federal loan, regardless of their income or when they borrowed, can take advantage.
But consumer advocates say student loan servicers, the middlemen who collect and apply payments on the government’s behalf, have been unprepared for the volume of applications, leading to months of processing delays and backlogs.
“There is no streamlined way to switch into REPAYE,” said Heather Jarvis, an attorney specializing in student loans and who works with borrowers. “It doesn’t seem clear to me that any thoughtful procedure was in place when people first started applying. It seems to have caught servicers off guard. They don’t seem to be prepared to deal with it in any way that makes sense or is working well.”
Whereas it typically takes two or three weeks to get enrolled in any of the other income-driven repayment plans, advocates say it is taking 30 to 60 days longer for the newest one. And while some borrowers wait, their monthly bills are actually increasing as servicers temporarily place them in standard repayment plans. Servicers can grant a type of forbearance that reduces payments to as little as $5 while an application is being processed, if borrowers check a box on the form asking for that relief. But advocates say some servicers are failing to follow through.
Delays have been reported for applications handled by Navient, Great Lakes, American Education Services and FedLoan Servicing, but none of the student loan servicers were willing to comment for this article. Instead, they referred all questions to the Department of Education.
Officials at the department say the majority of servicers are meeting or exceeding the target turnaround time of 15 days. However, FedLoan, which primarily handles borrowers seeking public service loan forgiveness, has a significant backlog, according to the department. Agency officials say they have taken steps to correct the problem and expect the servicer will catch up later this month. In the meantime, the department is monitoring FedLoan accounts to make sure borrowers are able to enroll in affordable repayment plans.
“We are currently working with each of our servicers to make sure we are doing all that we can to improve the enrollment process for all income-driven repayment plans so that borrowers are able to enroll as quickly as possible,” said Dorie Nolt, a spokeswoman for the department. “And we will continue to put in place corrective action plans when that isn’t happening.”
A part of the problem is the new application put in place for all income-driven plans, said Adam Minsky, an attorney specializing in student debt. There are a lot more boxes to check and questions that can be confusing, he said. Instead of one question to determine the size of someone’s family, there are now three.
“The application is so contradictory and the way the questions are worded … it’s not intuitive,” Minsky said. “In an attempt to simplify and streamline the process by creating one form for all of these different plans, the Department of Education has really made what’s supposed to be a straightforward process into a really complicated system that is tripping people up.”
When Anthony Bartels, a veterinarian in Denver, applied for income-based repayment in 2012, he found the paper application a bit tedious, but once he submitted it, he said enrollment was “seamless.” Not this time around.
Bartels, 39, applied to switch over to the new plan through the government’s online portal the first week in January, but said he never received any correspondence following up on his application. By February, he contacted his servicer, Great Lakes, and was told that he needed to make a payment of at least $5. Bartels did not ask for temporary forbearance when he filled out the application, but didn’t think that would hold up the process.
“There is nothing on the electronic application that tells you what happens if you don’t check that box, so I spent two hours on the phone with my servicer and a student loan ombudsman to figure that out because it wasn’t clear,” he said. “It’s all just more confusing, but it’s a new plan.”
Department officials say the agency is working to streamline the application, and expect to have a simpler form in place by the end of October.
Jennifer Wang, director in the District office of the Institute for College Access and Success, an organization that worked on the new plan, said she was dismayed to learn that people are having a hard time enrolling.
“You don’t have the same debt-to-income ratio that you have to prove with some of the other plans. There are eligibility criteria that are just not at play here with REPAYE, so it is a little confusing why this is taking longer,” she said. “I think there are some servicing problems that are persisting.”
Department officials say they have worked closely with servicers to prepare for the launch of the new repayment plan, developing training materials and conducting extensive testing ahead of the rollout. Since then, the department has responded to inquiries from servicers about their requirements. But there are hiccups.
“We require our servicers to offer quality customer service to REPAYE applicants. This means taking the time to guide borrowers through the application process, carefully address questions and ensure applications are complete,” Nolt said. “We know that when borrowers contact us about their student loans, they need clear and timely support.”
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