More than 300,000 student loan borrowers faced a major setback after the US Department of Education rejected their applications for income-driven repayment plans, according to a recent court filing. The denials have left many borrowers stuck with higher monthly payments or placed in forbearance while interest continues to accrue.The Education Department rejected 327,955 requests in August alone, the filing showed. Millions of borrowers depend on IDR plans to keep payments affordable and to qualify for eventual loan forgiveness, including through the Public Service Loan Forgiveness programme.Scale of the application backlogThe court document revealed that the Education Department still had 802,730 IDR applications pending as of the end of November. Consumer advocates expressed alarm at the figures. Persis Yu, deputy executive director and managing counsel at Protect Borrowers, said the situation could delay forgiveness progress, Yu told CNBC.Yu explained to CNBC that borrowers could lose qualifying months for IDR cancellation and PSLF, while also paying more each month. The issue affects a wide range of borrowers, including public servants who must enrol in IDR plans to remain eligible for PSLF.More than 42 million Americans hold student loans, with outstanding balances exceeding $1.6 trillion. The Education Department declined to comment when contacted by CNBC.Why applications were deniedAccording to the court filing, Education Department officials said the rejections stemmed from an “unforeseen ambiguity” in applications requesting the plan with the lowest monthly payment. Officials told the court that two repayment plans produced identical payment amounts, creating uncertainty.As a result, the agency chose to deny the applications procedurally. Yu challenged that explanation, saying to CNBC that the IDR application already accounted for such scenarios through a required ranking of plans.Higher education expert Mark Kantrowitz also questioned the justification. Kantrowitz told CNBC that the department’s reasoning for rejecting so many borrowers appeared weak and inconsistent with established practice.What borrowers should do nextBorrowers face these obstacles as default rates rise. The Education Department previously said more than five million borrowers are currently in default, a number that could climb to 10 million. The department confirmed to CNBC that wage garnishment for borrowers in default will begin in early January.Kantrowitz advised affected borrowers to submit a new IDR application promptly. He told CNBC that applicants should select a specific repayment plan rather than choosing the lowest payment option.The Biden administration’s SAVE plan is no longer available after a court blocked it, and President Donald Trump’s legislation is phasing out other IDR options. Kantrowitz said the Income-Based Repayment plan now offers the most viable choice for many borrowers.Under IBR, borrowers pay 10% of discretionary income, or 15% for some older loans. Tools on StudentAid.gov can help borrowers compare payments before reapplying.
