Few Student Loan Borrowers Take Advantage of Repayment Help

Federal student loan borrowers have options to repay based on their income and eventually get the balance forgiven. Why don’t many use it?

There’s nearly $1.2 trillion in outstanding student loan debt, and more than $1 trillion of it is from federal student loans, the federal government says.

Those federal student loans come with more repayment options than private ones, but most students aren’t taking advantage of them. Why not? They may not know how, Bloomberg Businessweek suggests.

Two-thirds of Federal Direct Loan Program borrowers are on a normal, 10-year repayment plan. The rest are on different kinds of plans, with about two-thirds of this group using options that make loans cheaper in the short term but more expensive in the long term, Businessweek says. That’s either through increasing the term of the loan or by using a gradually increasing payment schedule.

That leaves just three out of 10 who are using an income-based repayment plan, which not only ties payment amounts to monthly income but also forgives the balance remaining after 10, 20 or 25 years, depending on the program. They are:

  • Public Service Loan Forgiveness. Full-time employees in some public service jobs, such as teachers, can have their remaining debt forgiven after 10 years of on-time, income-based payments.
  • Pay As You Earn. This income-based repayment plan debuted in December 2012 and is available only for those who received a loan disbursement more recently than September 2011. Eligible balances are forgiven after 20 years.
  • Standard income-based repayment allows forgiveness after 25 years.

There are advantages and disadvantages to each option, but you have to know about them to even consider switching to income-based repayment. The problem is, “publicizing the programs is largely up to the loan servicers that collect monthly payments and are supposed to work with borrowers in trouble,” Businessweek says. They don’t always do a good job of it.

The application process was streamlined this summer, the White House says, and the U.S. Department of Education is pushing borrowers to educate students about their repayment options before they leave school.

Do you know someone who would benefit from one of these programs?

Stacy Johnson

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  • Calipenguin

    “publicizing the programs is largely up to the loan servicers that collect monthly payments and are supposed to work with borrowers in trouble,”
    So, students who received college degrees in subjects such as nuclear physics and business administration are too clueless to even do a Google search on their own loans to find easier repayment methods? Either these students don’t deserve their degrees or the loans are not a hardship for them.

    • pennyhammack

      A non-computer nerd, and there are still some of us out there, might not even think to “google” about repayment plans. I think the loan company has an obligation to make this clear to the student. In today’s economy many graduates may find getting a good paying job involves a long and discouraging search. I know of one graduate that worked at a fast food chain for a year before she found a job in her field of study. And even now, she isn’t making enough to make big loan payments or the inflated interest on the loan. Big banks who can afford it pay a much lower interest rate than students graduating from college.

  • Reba Gilbert

    Once the student loan or parent loan is in default, it is very difficult to resolve the issue at hand. My loan came into default when I got cancer and was laid off from my job, four years ago.. I have been receiving calls from a third party collection agency, who were not helpful at all. I had been working to resolve this issue for 2 years…I was told they would not accept any payment less than $70 per month. I was told that they would put this on my credit report; and that they would destroy me so I could never get a job. They did that 2 years ago!! I have been informed that his is worse than a foreclosure on a credit report. I was hired for a 4 month temp job last year; and they garnished $70 a week from my pay….then took $1000 from my total tax refund. I am currently unemployed. Can’t get a job, can’t pay the bill!! DUH!

    If you already have a student loan to repay…..pay this before you pay credit cards, installment loans, medical bills, and mortgage payments.

    My advice to anyone considering a student loan or parent loan……DON’T!!!! This has been one of the biggest nightmares of my life.

    I am working with my personal advisor, Philip Tirone, who is helping me restore my credit. GLHE has finally agreed now to accept payments of $20, and will then remove this from my credit report in a year. I hope this works.

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