Student Loan Servicers Face A Backlog Of Almost 2 Million Applications

Loan servicers face a backlog of more than 2 million income-driven repayment (IDR) applications and 50,000 loan forgiveness applications as policies change and court battles play out.

The Department of Education (DOE) reported that in April, loan servicers either approved or denied nearly 80,000 applications for income-driven repayment (IDR) plans, which provide borrowers with cheaper monthly payments. This is about 3.8% of the total applications loan servicers had at the beginning of April.

Loan servicers have been slower to process after the Education Department closed IDR applications and told servicers to stop processing them in February, in response to an appeals court’s decision questioning the legality of several IDR plans. This left many borrowers stuck in processing limbo for months, with some unable to access affordable payments and others unable to progress toward loan forgiveness.

Additionally, the Education Department processed 1,472 applications for Public Service Loan Forgiveness (PSLF) Buy Back, representing about 3% of applications at the time. The program allows borrowers in forbearance who have reached the required 120 months of public service work to “buy back” the payments they missed to get forgiveness.

The majority of the processed IDR applications in April were likely simple rejections, due to things such as incomplete information, said Scott Buchanan, executive director at the Student Loan Servicing Alliance.

Buchanan expects loan servicers to process about half to three-fourths of the 2 million pending applications in the next few months.

Rapidly Changing Student Loan Policies Have Created a Backlog

The almost 2 million pending IDR applications are more than servicers normally have, Buchanan said. The backlog built up after several policy changes disrupted servicer processing and prompted a higher volume of applications.

As millions of borrowers enrolled in the Saving for a Valuable Education (SAVE) and other IDR plans await the courts’ decision as to whether their repayment plans are legal, many have moved to more secure options. Others applied for lower payments to avoid wage garnishments from defaulted loans.

Rapidly changing policies, such as the Education Department closing and reopening IDR applications within a month, have made it complicated for both loan servicers and borrowers to keep up, Buchanan said.

“Part of that has been because the processing has been paused by the administration,” Buchanan said. “There was [also] a lot of confusion in the courts about what was going to happen with SAVE.”

Many borrowers like Tammy Stinson, who could not receive her time-based loan forgiveness while in forbearance under the SAVE plan, have moved to a different repayment plan. Stinson told Investopedia she started her application to move plans on Jan. 7. Although the department said application processing typically takes about 30 days, Stinson said she was moved out of SAVE about 80 days after she first applied.

“It’s just a frustrating process,” Stinson said. “The people that work there, there’s no way that they could keep up. I don’t know how they could, because [there are changes] like every couple of weeks.”

Thousands of Borrowers Applied For Loan Forgiveness After Being Forced Into Forbearance

Similarly, policy changes and lawsuits challenging some IDR plans led many borrowers to apply for loan forgiveness through the PSLF Buy Back program, creating a backlog of 49,318 applications.

In July, the Department of Education placed about 8 million borrowers enrolled in the SAVE repayment plan into administrative forbearance. That meant any payments a borrower made during this time lowered their loan amounts, but did not count toward the 120 qualifying payments required for loan forgiveness under PSLF.

Therefore, the department recommended that borrowers apply for the PSLF buy back option. However, amidst policy and administrative changes, many borrowers’ buy back applications have been stuck in processing for several months.