Imagine this scenario–Congress passes a new tax deduction that primarily benefits middle income Americans and the I.R.S. decides not to provide the benefit because their staff can’t figure out how to reprogram their computers. It’s hard to imagine because it is so unlikely. At worst, there would likely be an outcry and the I.R.S. would be pressured to fix the system. There would be some sort of compensation for those who had been harmed by the error.
A similar scenario is occurring at the Department of Education, but with some different facts. Instead of middle class Americans, the problem affects mostly low-income Americans. We have written about this issue repeatedly on this and other blogs and in letters to Secretary Duncan and others at the Department of Education. We have met with staff at the Department for almost two years to discuss the issue. The Department agrees that it is a problem and that borrowers coming out of default through consolidation should be allowed to select either income contingent repayment (ICR) or income based repayment (IBR). They have not fixed the problem because they claim that they need to update their systems, something that apparently takes a very long time—about 1 ½ years now and counting.
Reasonable people can differ when debating the policy behind consolidation and default, but that is not the point. There is a law in place and the Department is not complying with it. This confuses and harms low-income borrowers who are trying to resolve student loan defaults. Not only has the Department failed to update its systems, but it also continues to use a form letter that contains inaccurate information. This letter states that borrowers in default and consolidating their loans must select ICR. (Note that the letter confirms that the borrower selected IBR, but states inaccurately at the bottom that borrowers in default are required to repay under ICR).
How long can the Department continue to thumb its nose at some of the neediest borrowers?
