More than 300,000 student loan borrowers were rejected from repayment plans under President Donald Trump’s Education Department (ED), according to a December 15 court filing.
Why It Matters
After the ED denied 327,955 borrower requests solely in August, student loan borrowers will likely find themselves stuck in their prior repayment plans. This often translates to higher monthly payments or forbearance as interest builds.
Across the country, more than 42 million Americans hold student loans with the debt amount reaching beyond $1.6 trillion.
What To Know
While more than 300,000 borrowers saw their repayment plans get rejected in August, another 802,730 Income-Driven Repayment (IDR) plan applications were pending with the ED as of November.
Millions of student loan borrowers use IDR plans to lower their monthly payments as the monthly amount is usually capped at a certain point based on the borrower’s discretionary income. Debt cancellation is also often possible after 20 or 25 years.
The ED said in its court filing that hundreds of thousands of the applications were rejected because of “unforeseen ambiguity” about the proper repayment plan for the borrowers in question. The borrowers had asked to be placed with “the lowest monthly payment,” the filing shows. However, the ED said that two plans resulted in an equal monthly bill.
“The current student loan agenda has been a complete debacle, and this is just another symptom of a deeply flawed rollout,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. “The Department of Education is pointing to ‘plan ambiguity’ as the reason for the high denial rates—essentially admitting that borrowers are being rejected because it isn’t clear which repayment plans they should even be enrolled in.”
To date, more than 5 million student loan borrowers are in default, and wage garnishment is expected to resume for student loans in default in January.
What People Are Saying
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “The decision to reject over 300,000 applications asking for enrollment in repayment assistance comes at a time when many borrowers feel as if they’re running out of options for help with meeting the demands of monthly loan payments. Many of these applications were seemingly denied based on a technicality, as the borrowers opted to be put into a plan with the lowest monthly payment, and multiple plans for these students produced the same amounts.”
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: “This is par for the course, and I would expect more denials, ambiguity and mass confusion as those running the department have very little experience with education nor government function.”
What Happens Next
Those who had their IDR plan application rejected should file a new request at StudentAid.gov, experts say.
“For those denied, time is of the essence,” Beene said. “Borrowers should strongly consider applying for the new income-based repayment plan to at least have hope of some ease to their monthly payment.”
