Government watchdog: 76,200 student-loan borrowers may be defrauding the system — DeVos calls them ‘dishonest people’
A new report from the Government Accountability Office calls attention to potential fraud in student-loan repayment plans, but experts say the issue is more complicated.
Over the past several years, government watchdogs have raised alarm that federal student-loan borrowers are struggling to access programs they’re entitled to under the law to make their student-loan payments more manageable.
Now, a report from one of those same watchdogs is suggesting some borrowers are actually gaming that system.
In response, Secretary of Education Betsy DeVos vowed to “ensure that dishonest people do not get away with,” defrauding the government’s student-loan program, adding that her agency is working to identify and refer cases of suspected fraud to the Department of Justice for prosecution.
At issue are what’s known as income-driven repayment (IDR) plans, which allow federal student-loan borrowers to make payments that are tied to their income instead of how much they owe.
Borrowers with a low enough income can make payments of zero dollars a month through these plans and still stay current on their loans. These payments also count towards forgiveness, which happens after 20 or 25 years through IDR repayment programs, depending on the plan.
The report from the Government Accountability Office found that 76,200 student-loan borrowers are making payments of zero dollars a month on their student loans through IDR plans, but may be earning enough money that they’re required to pay something.
But experts, borrower advocates and student-loan servicers — the companies that manage the repayment process for the federal government — are skeptical that’s what’s actually going on.
When borrowers enroll in these plans, the government asks those who aren’t earning income to self-certify that’s the case, but doesn’t require them to send in documentation.
In addition, the GAO raised concerns that some borrowers may be exaggerating their family size, which affects the amount a borrower will pay under an IDR plan. Approximately 1% of the IDR plans the GAO analyzed reported a family size of nine or more.
Student debt relief scams may be in part to blame
The issues identified by the GAO represent a small slice of the nation’s 44 million student-loan borrowers and student-loan experts say there are a variety of factors that explain the trends other than fraud.
For one, so-called student-debt relief companies are likely filing applications with wrong information on behalf of borrowers, said Scott Buchanan, the president of the Student Loan Servicing Alliance, which represents student-loan servicers, the companies that manage the repayment process for the federal government.
Borrower advocates and government agencies have been concerned for years about these companies, which use aggressive marketing techniques — including, mail with government-looking seals, robocalls and internet ads — touting to borrowers that they can lower their student-loan payments for a fee.
In reality, borrowers can apply for income-driven repayment and other federal student-loan programs themselves for free. But to fulfill the promises they’ve made to borrowers that they’d lower their payments, these student-debt relief companies may be reporting incorrect incomes and family sizes for borrowers.
“Our experience that is the vast majority of borrowers are trying to be honest and truthful,” Buchanan said. “If you look at the sample that the GAO identified — while there are outliers — it’s not a huge number and I would probably bet that most of them are the result of these debt-relief firms that are out there just gaming the system.”
There’s also the possibility for genuine confusion among borrowers about who qualifies as part of their family for the calculations or whether they’re earning taxable income at a given time, Buchanan said.
The GAO and DeVos say there is a fix that would both address concerns about fraud in the student-loan program and make it easier for borrowers to access income-driven repayment. For years, advocates, servicers and others have asked that the Department of Education and the Internal Revenue Service to share data so that, at minimum, borrowers wouldn’t need to recertify their income each year to stay on affordable repayment plans.
Unfortunately, making that a reality would take an act of Congress.
https://www.marketwatch.com/story/government-watchdog-76200-student-loan-borrowers-may-be-defrauding-the-system-devos-calls-them-dishonest-people-2019-07-26