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One-Third of Low-Income Student Borrowers Who Rehabbed Loans Could Default Again

[Updated (10/17/2016, 11:45 p.m.) with additional information and editing changes.]

One in three student-loan borrowers with very low incomes who have “cured” a loan in default in the past year are likely to default again, according to a report released on Monday by the Consumer Financial Protection Bureau.

The federal agency’s student-loan ombudsman’s latest annual report highlights complaints the bureau has received from the “most economically distressed” borrowers about the transition from default to an income-driven repayment plan. The bureau estimates that more than 650,000 such borrowers “rehabilitated” a defaulted federal student loan last year by making $5 monthly payments for nine months. It projects that over the next 24 months, more than 200,000 of those borrowers will default  a second time, “unless policy makers and industry take immediate action.”

“Too many student-loan borrowers are being left behind due to breakdowns in the federal programs designed to provide them a fresh start, including an affordable monthly payment and a path to long-term success,” the ombudsman, Seth Frotman, said in a news release.

Those breakdowns include dead ends and delays that borrowers face when seeking loan forgiveness, among other things, according to the bureau. The report recommends overhauling the federal programs that seek to guide borrowers from default back to repayment.

Read the report.

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