Today the average student graduates from college with over $28,000 in student loan debt and the total student loan debt in America has topped $1.4 trillion. Of the 44 million Americans who owe student loan debt about 8 million borrowers have fallen into default.

Defaulting on federal student loans causes serious problems. Not only does it cost money to the taxpayers, the borrower’s wages can be garnished, they can lose benefits, and it negatively impacts their credit history. With a broken credit history,
many more doors are closed shut. For instance, defaulted borrowers would have trouble qualifying for a mortgage down the road or even applying for an auto loan. They couldn’t even qualify for a consolidation loan through a private student lender which would actually help them pay off their debt.

Because of this, federal laws were created to allow borrowers who fell short on their loans the opportunity to rehabilitate their loan. This means borrowers can get their loans out of default by going through the process of making 9 monthly income-based payments to a debt collector. This process is meant to clean up their credit report and get their repayments back on track.

However, a new report from the Consumer Financial Protection Bureau (CFPB) illustrated a number of breakdowns in the student loan rehabilitation process. Of all the borrowers  that have rehabilitated their loan status from default, one in three could have their loans go into default again due to gaps in the loan programs.

Borrowers are only allowed to rehabilitate their loans one time so those who go back into default have a much harder time getting their loans back into good standing.

CFPB Director Richard Cordray issued a statement that this report demonstrates the problems with the current student loan system and that no borrower should end up caught in a cycle of default. “Today’s report shows that far too many of these borrowers continue to fall through the cracks of a flawed student loan system.”

This report was drawn up by the CFPB’s Student Loan Onbudsman Seth Fortmann. It  looked at the debt collection problems following defaulted borrowers who are trying to get their loans out of default and continue making payments.

The CFPB found that over the next two years these recurring problems amount to $125 million in interest charges alone. This revelation has caused the CFPB to realize that the system must be fixed in order to help borrowers get out of this cycle of default.

Seth Fortmann stated, “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. This report offers further evidence that industry practices and needless red tape can turn a student loan into an unbearable burden. Policymakers should work to reform the programs that are failing those borrowers that need help most.”

The CFPB has called for immediate action to address the problems and make this process easier for borrowers. They continue to evaluate ways to improve the student loan rehabilitation program and are offering suggestions to borrowers on how they can successfully rehabilitate their loans. The Repay Student Debt page helps borrowers utilize information on how to handle their student loans. It does not offer advice but provides guidelines to help borrowers understand their options and improve their situations.