U.S. Education Secretary Betsy DeVos Photo credit: ASSOCIATED PRESS
A new government watchdog report says that 76,200 people may be committing student loan fraud.
Here’s what you need to know.
Student Loan Repayment Fraud: New Report
A new report from the U.S. Government Accountability Office (GAO) found the following with borrowers enrolled in an income-driven student loan repayment plan:
- 76,200 borrowers claimed they earned zero income and therefore could not “afford” to make a monthly student loan payment
- As a result, these borrowers paid less money than they should have
- These borrowers were enrolled in 95,100 income-driven repayment plans
- This represents 11% of all income-driven repayment plans the GAO analyzed
- These borrowers owed $4 billion of Direct Loans as of September 2017
According to the GAO, 34% of these income-driven repayment plans were held by borrowers who earned $45,000 per year, on average, with some earning as high as $100,000 per year. About 1% of the plans analyzed (40,900 plans) were for borrowers who claimed they had nine or more family members living in their household.
Why This Matters
Is it possible that some of these borrowers misunderstood the question or mistakenly entered the wrong information? Sure. Is it possible that student loan debt relief companies retained by borrowers may have completed the erroneous information on a borrower’s behalf? Yes. Are there other innocent reasons for these findings? Perhaps.
The report does not name specific borrowers nor determine the underlying reason behind the potentially false information. However, if borrowers erroneously claimed zero income to avoid paying their student loans, they are cheating the federal government, and ultimately taxpayers. Specifically, if a borrower doesn’t make a monthly student loan payment, the federal government doesn’t collect money each month. After 20 to 25 years, if the borrower then receives student loan forgiveness, taxpayers may pay a larger amount for student loan forgiveness.
An income-driven repayment plan enables you to repay your federal student loan based on the amount of income you earn, your family size and other factors. So, if you earn zero income and have a relatively larger family size, you may pay as low as $0 each month. After 20 or 25 years – depending if you have an undergraduate or graduate student loan, respectively – the remaining balance on your federal student loans could be forgiven. That’s potentially good news for you the borrower. The bad news is that you could owe income taxes on the amount forgiven. Ouch.
Education Department Response
“Misrepresenting income or family size is wrong, and we must have a system in place to ensure that dishonest people do not get away with it,” U.S. Secretary of Education Betsy DeVos said. “We didn’t create that problem, but rest assured we will fix it.”
DeVos wants to increase measures to verify income and family size data, including with IRS data, for borrowers enrolled in income-driven repayment plans. DeVos also wants to refer suspected cases of fraud to the U.S. Department of Justice for prosecution.
“If Congress provides the Department with this authority, we could significantly reduce the risk of fraud and improper payments, save taxpayers money, and reduce the burden on borrowers when they annually recertify their income with the Department,” DeVos said.
Your Next Steps
When enrolling in income-driven repayment plans, ensure that you answer all information accurately. If you’re unsure what information to enter, contact the U.S. Department of Education or your student loan servicer.
There are four primary ways to manage and repay your student loans. Make sure you understand all your options:
This free student loan repayment quiz can help you determine which student loan repayment options, including student loan forgiveness, are best for you based on your individual circumstances.
