A long implemented trick by some student loan assistance companies has been to tell consumers they can inflate the number of people they support in order to reduce the monthly payment on Income-Drive Repayment (IDR) Plans.
Consumers have reported and I’ve covered stories where sales representatives of student loan assistance companies, sometimes pretending to be only “document preparation” companies, have said things like:
- If you give someone a ride to work you can count them as a dependent towards reducing your student loan payments.
- How many people regularly hang out at your house? You can count them as people you support.
- Do you have any roommates because you can count them as dependents.
- How many people do you buy presents for?
A brave inside tipster (send in your tips here) told me, “In order to make the sale, sales agents would falsely increase family sizes on government documents in order to deceptively get clients reduced or free monthly payments on their Federal student loan payments.”
Consumers fell for this false inflation of family size either out of blind faith the company they hired to lower their student loan payments actually knew what they were talking about, or they just wanted a lower payment.
The problem with this strategy is it is based entirely on a mountain of lies on a federal form. And the reality has always existed that either the government was going to ask for documentation before eventually forgiving loans in an IDR plan or monthly payments were going to explode when the actual proof was requested to verify family size.
Now imagine what will happen when the proof is demanded to support the IDR and you can only provide the required proof for three people and you’ve been claiming 15. Now there is a red flag.
The Jig is Up
Just recently the United States Government Accountability Office (GAO) submitted a report titled – “Education Needs to Verify Borrowers’ Information for Income-Driven Repayment Plans.”
Here is what the GAO investigation found:
“GAO identified indicators of potential fraud or error in income and family size information for borrowers with approved Income-Driven Repayment (IDR) plans. IDR plans base monthly payments on a borrower’s income and family size, extend repayment periods from the standard 10 years to up to 25 years, and forgive remaining balances at the end of that period.
• Zero income. About 95,100 IDR plans were held by borrowers who reported zero income yet potentially earned enough wages to make monthly student loan payments. This analysis is based on wage data from the National Directory of New Hires (NDNH), a federal dataset that contains quarterly wage data for newly hired and existing employees. According to GAO’s analysis, 34 percent of these plans were held by borrowers who had estimated annual wages of $45,000 or more, including some with estimated annual wages of $100,000 or more. Borrowers with these 95,100 IDR plans owed nearly $4 billion in outstanding Direct Loans as of September 2017.
• Family size. About 40,900 IDR plans were approved based on family sizes of nine or more, which were atypical for IDR plans. Almost 1,200 of these 40,900 plans were approved based on family sizes of 16 or more, including two plans for different borrowers that were approved using a family size of 93. Borrowers with atypical family sizes of nine or more owed almost $2.1 billion in outstanding Direct Loans as of September 2017.
These results indicate some borrowers may have misrepresented or erroneously reported their income or family size. Because income and family size are used to determine IDR monthly payments, fraud or errors in this information can result in the Department of Education (Education) losing thousands of dollars of loan repayments per borrower each year and potentially increasing the ultimate cost of loan forgiveness. Where appropriate, GAO is referring these results to Education for further investigation.”
And as hard as Education has pushed back on forgiving loans under the Public Service Loan Forgiveness program, I can only imagine what will happen when these fraudulent IDR plans come up for forgiveness and are denied.
The consumers will be on the hook for the fraud and the student loan assistance and document preparation companies will be long gone.
What Are Student Loan Assistance Companies Going to Push Now?
Reality is that for now, the document prep and student loan assistance companies are going to continue business as usual and make hay while the sun shines. They will continue to promote, “We can get you $0 monthly payments” until the Department of Education puts the following changes into place.
Let’s be honest here, an entire niche of debt relief for student loan help has been built on the lack of verification for an inflated family size that artificially lowers the monthly IDR payment.
Potential False Applications Being Referred for Further Action
The GAO report says that as a result of their investigation, “Our data matching analysis showed, for example, that tens of thousands of borrowers who were not making monthly loan payments because they reported zero income on IDR applications may have had enough income to do so. Where appropriate, we are referring these borrowers to Education for further investigation.”
You can only imagine the blowback the student loan assistance companies could get when consumers are asked by Education to prove the application data.
The Department of Education has just said it will implement the recommended changes in the report.
GAO Recommendations to Change IDR Program Verification
The GAO said the following changes should be made to the IDR application process.
1. The Chief Operating Officer of Federal Student Aid should obtain data in
order to verify income information for borrowers reporting zero income on
2. The Chief Operating Officer of Federal Student Aid should implement
data analytic practices, such as data matching, and follow-up procedures
to review and verify that borrowers reporting zero income on IDR
applications do not have sources of taxable income at the time of their
3. The Chief Operating Officer of Federal Student Aid should implement
data analytic practices, such as data mining, and follow-up procedures to
review and verify family size entries in IDR borrower applications.
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