The Student Loan Ranger is starting to have a hard time keeping up with all of this good news. A few weeks ago we posted about some very positive changes initiated by the Department of Education to make things a little easier for student loan borrowers and their families. Just a few days later, the department and the Consumer Financial Protection Bureau announced a few more.
Over the last 10 years or so, Congress and the Obama administration have introduced several versions of the income-driven repayment plans. What these plans have in common is they base your eligible federal student loan payments on your income and family size, ensuring those payments are affordable for most borrowers.
Payments under these plans can be as low as zero dollars per month and offer various subsidies on unpaid interest. After 20 or 25 years, depending on the plan, any remaining balance is forgiven – and taxed as income, unfortunately. These are also all qualifying payments if you are working toward Public Service Loan Forgiveness.
The problem is that many borrowers aren’t aware these options exist or understand how they work. While all federal loan borrowers are informed of their repayment options as part of their exit counseling, and again in various disclosures and notifications sent as repayment begins or if payments fall past due, let’s face it: Many of us don’t open much of our mail – especially if we just can’t face an unaffordable bill.
Back in 2014, an estimated 10 percent of eligible borrowers were enrolled in the income-driven repayment plans, and even that was almost double from the year before. Today, at 5 million borrowers, that statistic has doubled – but is that enough? Recent statistics show that as much as 27 percent of all student loans are either past due or in a deferment or forbearance status – meaning borrowers are unable to make payments.
An even more alarming statistic comes from a government report showing that up to 70 percent of defaulted student loan borrowers would have qualified for lower payments. Anecdotal information shows that this could be the result of borrowers just not understanding that there are income-based options available to them.
To help with this communication gap, the White House is asking schools, lenders, state and local government and other employers to take a pledge to help educate employees and alumni about the existence of these plans.
The ultimate goal is to see 2 million more eligible borrowers enroll in one of these plans to reduce not only the federal student loan delinquency rate, but increase the number of borrowers headed in the direction of zero student debt. Depending on the borrower’s debt level, income and eligibility for Public Service Loan Forgiveness, this could be through repayment or repayment with forgiveness at the end of the required term.
American Student Assistance, the author of the Student Loan Ranger, has taken this pledge. We’re going to focus not only on overall IDR awareness, but on ensuring that older borrowers, particularly Parent PLUS loan borrowers, understand how they can access income-contingent repayment and Public Service Loan Forgiveness. We encourage our readers to consider asking their own employers to take the pledge as well and make it their own.
To date, more than 40 organizations have signed on for the White House Student Debt Challenge, from employers like Fidelity Investments – which recently implemented student loan assistance as an employee benefit – and Rite Aid, to advocacy groups like The Institute for College Access and Success and the Center for American Progress, to financial advice groups like NerdWallet.
Colleges and universities of all sizes are also taking part, from the State University of New York and the University of California, to Lone Star College and United Tribes Technical College.
Hopefully, someday student loan repayment options will be more straightforward and easy to understand, while still flexible enough that they allow borrowers to pay in the way that works best for their individual circumstances. In the interim, the White House Student Debt Challenge is another good step in getting the word out that there are ways to make student loan repayment more manageable – so borrowers don’t have to put the rest of their financial lives on hold.