A student-loan worker who enrolled people in the first income-based debt-repayment plans says it was 'a bad program from the very beginning'

• Income-based repayment plans were created in 2007 to give borrowers affordable monthly bills.
• But a student-loan company worker who saw the program's creation said it was bad from the start.

The purpose of income-driven repayment plans for student loans is in the name: Give borrowers affordable monthly payments based on the income they're bringing home, with the promise of loan forgiveness after about 20 years.

But a worker at a small student-loan company in Iowa who was there when the Education Department created the income-based repayment program in 2007 told Insider it was flawed at the outset.

"The implementation of this plan was never the problem," said the worker, who requested to remain anonymous but whose identity is known to Insider. "It was a bad program from the very beginning."

The plans allow borrowers with direct federal loans or loans through the Federal Family Education Loan program, which are privately held, to pay them down through monthly payments fixed at a percentage of their discretionary income, with forgiveness after 20 or 25 years of repayment.

While the first income-driven repayment plan — known as the income-contingent repayment plan — was introduced in 1994, when President Joe Biden took office last year only 32 borrowers total had received forgiveness, and interest on the loans has added a significant burden. Investigations have described major flaws with the plans, like a failure to keep track of payments. And while the Biden administration has announced reforms to the program, the worker said the plans' failures are not getting enough attention.

The worker has been employed at a nonprofit student loan company in Iowa that services private and FFEL loans for over a decade. She said President George W. Bush's Education Department gave poor guidance to companies on carrying out the plans, leading to a difficult application process that was accompanied by mounting interest on the loans.

"We didn't even want to tell people about loan forgiveness because we didn't want people banking on it," the worker said. "Because we knew how unlikely it would be for them to get it. People are going to accrue a lot of interest, and it's going to be really bad for them, and we really didn't want to offer it to them."

'We have so many people who are having so much trouble applying'

An NPR investigation into income-driven repayment plans published in April said internal documents from a 2016 review indicated three student-loan companies — Mohela, CornerStone, and the Pennsylvania Higher Education Assistance Agency — were not tracking borrowers' payments toward the plans, meaning borrowers had to ask the companies "to do a labor-intensive records review" to determine whether they qualified for forgiveness.

The student-loan company worker described a confusing paperwork process with these plans.

"It was just always complicated, like overly so," she said, referring to enrolling in the plans. "Believe it or not, for as much trouble as people have applying for it now, it was way worse back then. But still, we have so many people who are having so much trouble applying."

Borrowers who want to enroll in an income-based repayment plan need to provide proof of income, which the worker said can be difficult, especially for borrowers who are self-employed. The worker said that if she cannot verify the borrower's gross income and frequency of pay, the borrower could be denied enrollment in a plan.

She added that while the application process had become a bit simplified and condensed into one form borrowers need to fill out every year, it still leaves room for error because the form and the supporting documents require significant accuracy.

"It's not that hard if you see it every day — if you're really familiar with it, it's pretty simple — but this is a form people see once a year, so we don't expect them to remember it, and it's really easy to get stuck on," she said.

Borrowers on income-based repayment plans can face mounting interest

Student-loan borrowers are likely well aware of the impact of interest on their debt — it's prevented many from putting a dent in the original balance they borrowed.

A 59-year-old man who originally borrowed about $79,000 told Insider last year that he'd paid off $175,000 and still owed $236,485. He described it as a "debtors' prison," saying the interest accumulated had kept him in an endless cycle of repayment.

Income-driven plans also involve interest. The worker said that placing people on a 25-year repayment plan didn't stop interest from growing. She said that if a borrower is late in recertifying their income, the interest will capitalize — meaning it's added to the original loan balance, so future interest grows based on that higher amount — leading to higher monthly payments.

Biden's Education Department recently indicated it wants to prevent interest capitalization whenever possible. While that could help borrowers starting in 2023, those who have been in repayment for decades could continue contending with higher monthly payments.

Lawmakers and advocates are pushing Biden to go further on reforms

In December, Biden announced reforms to income-driven repayment plans that included allowing borrowers to self-report their incomes — rather than submit tax documentation — to apply for or recertify the plans through July 31. In April, the department proposed fixes to the plans and said it would conduct a one-time revision of past payments.

However, an Education Department spokesperson told Insider on Thursday that an improved repayment plan will not be included in the upcoming regulatory proposal, and after NPR published its findings, lawmakers on both sides of the aisle urged the Education Department to take the reforms a step further.

Sen. Patty Murray and Rep. Bobby Scott, the chairs of the Senate's and House's education committees, wrote a letter in April urging the secretary of education, Miguel Cardona, to establish a new income-driven repayment plan "that keeps payments affordable, prevents debts from ballooning over time, and provides a reliable pathway out of perpetual repayment."

Also in April, 117 advocacy groups urged Cardona to create a waiver for income-driven repayment plans that would retroactively allow any payment a borrower has made to count toward loan forgiveness, among other proposals.

An Education Department spokesperson told NPR at the time that the department is "aware of historical issues with prior processes that had undermined accurate tracking of eligible payments," adding, "The current situation is unacceptable and we are committed to addressing those issues."

The student-loan company worker said she hopes that's the case.

"I think the government has a responsibility to these people, because we've done this to Gen Xers and millennials, but now we're getting a lot of Gen Z on there," she said. "And this is all these people who are getting trapped in this debt because they were told they were making the smart and the fiscally responsible decision to go on the income-based repayment plan and have a payment that matched their income. And all it's done is just lead to massive debt."