As all student loan borrowers who are paying off loans under an income driven repayment plan (IDR) realize, there can be confusion and uncertainty in the income reporting rules. It seems that, either via error or fraud, there are many thousands of potential IDR applications which have understated income, or overstated family size.
In a subsequent article, we’ll list some common ways or techniques that borrowers have used to minimize income, and comment on which methods might pass future scrutiny, and which might be “at risk”.
Where is the Oversight?
The Government Accountability Office (GAO) says that the Department of Education has been lax in their oversight. Not surprisingly, the current administration is blaming the previous one. Regardless, it seems there may be efforts underway to scrutinize past and future income verifications. In an AP/ABC news article Betsy DeVos is quoted as saying “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.”
The GAO has reported thousands of cases where borrower reported income did not seem to match federal income data, including cases where no income was reported despite federal data suggesting they indeed had substantial income. The GAO writes “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 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.”
GAO Report Excerpts
“We analyzed about 878,500 approved IDR plans held by about 656,600 borrowers for our income analysis, and approximately 5 million approved IDR plans for over 3.5 million borrowers for our family size analysis.”
[Explaining the “significantly changed” language on the IDR application] “Education does not define what is meant by ‘significantly changed.’ However, the application includes examples of why income may significantly change, including losing a job, experiencing a drop in income, or getting a divorce.”
“We identified IDR borrowers who both (1) reported zero income on their IDR application, and (2) had wages recorded in NDNH during the same quarter in which their IDR plan was approved”
“...our analysis cannot identify borrowers who may have earned additional taxable income that is not part of NDNH data, but should be included on IDR applications, such as income for individuals who are self-employed [DM note: which would include moonlighting income] or receiving alimony.”
Here is the full report.
So What Does This Mean for Borrowers?
Well, the first and most obvious point, is (as always) to be truthful on your income certification forms. We’ve unfortunately heard several borrowers claim “how will they know?” or “what are the chances they’ll find out?” This is not exactly the way to approach a form which warns at the top:
“WARNING: Any person who knowingly makes a false statement or misrepresentation on this form or on any accompanying document is subject to penalties that may include fines, imprisonment, or both, under the U.S. Criminal Code and 20 U.S.C 1097.” 20 U.S.C. § 1097 establishes penalties for certain offenses with respect to federal student aid funds; for example, any person who knowingly and willfully embezzles, steals, or obtains by fraud any such funds may be subject to a fine of up to $20,000 and imprisonment of up to 5 years.”
The form also has the following text in THREE places: “Note: Remember, any person who knowingly makes a false statement or misrepresentation on this form can be subject to penalties including fines, imprisonment, or both.”
In the near future there will be a LOT of borrowers who obtain a ton of dollars via loan forgiveness, and there is certain to be public backlash (whether justified or not) which will likely lead to a close examination of forgiveness applications (that’s our guess).
Keep an eye out for a future post of ours where we go through some of the more common tips/tools borrowers (especially physicians) rely on with respect to IDR plans, and which might not pass scrutiny by the Department of Education.
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