Research Can Pay Off for Students When It Comes to Loan Repayment

When it comes to federal student loans, repayment options are expanding and becoming more generous, but there’s still a “long way to go” when it comes to making sure students know about all the repayment plans at their disposal.

That’s one of the key points that a student debt expert raised Wednesday during a webinar, titled “What’s the Price?: ‘Pay As You Earn’ and Income-Based Repayment.”

“The really, really good news is there’s now more than one way to pay your loans back based on what you earn,” said Lauren Asher, president of The Institute for College Access & Success, or TICAS, a California-based nonprofit that does research and advocacy on issues of college affordability.

“And there’s light at the end of the tunnel after a certain amount of time,” Asher said in reference to loan forgiveness that can be obtained after different periods of time under the various repayment plans for federal student loans.

“It’s very easy now to apply for these plans,” Asher continued, referring to a website called studentloans.gov, which enables students to apply for a more practical repayment plan, based on their respective incomes. Visitors to the website should search for the “Repayment Plan Request” option on the left side of the homepage.

“And you don’t have to know which ones you qualify for,” she said.

The repayment plans discussed Wednesday were:

Income-Based Repayment (IBR): This plan is available for all borrowers with federal student loans, new or old. It has a payment cap at 15 percent of discretionary income and loan forgiveness after 25 years of payments.

Pay-As-You-Earn: This plan is for borrowers who took out their first loan after September 30, 2007 and at least one after September 30, 2011. This applies only to Direct Loans; payments are capped at 10 percent of discretionary income, and loan forgiveness can be obtained after 20 years of payments.

Income-Based Repayment 2014 (2014 is in reference to the year the plan will become available): Under this plan, borrowers who take out their first loan on or after July 1, 2014 can have payments capped at 10 percent of discretionary income and obtain loan forgiveness after 20 years of payments.

Asher noted that repayment calculators on the studentloans.gov website can be used to figure out payments under the various plans. Student borrowers can also electronically transfer their IRS tax data to help figure out repayments based on their current income.

In addition to repayment calculators on the studentloans.gov website, Asher called attention to www.ibrinfo.org, a website created by the Project on Student Debt, which is a TICAS initiative to help students learn more about the ins and outs of Income-Based Repayment.

Despite the “dramatic improvements” of putting repayment tools online, Asher said, more needs to be done to make student borrowers aware of the availability of the various repayment options for which they are eligible.

“There isn’t an automatic trigger to tell people that this plan is available,” Asher said.

Asher presented figures that show more than 1.3 million borrowers are currently enrolled in IBR, but said “many more borrowers” are likely eligible, but may not know. Two-thirds of four-year college graduates in 2011 had student loan debt, Asher said. Though the amount of debt varies, she said, the average debt per borrower is $26,600.

Exit counseling on student loans exists only for students as they are just leaving school and may not know what their payment ability is under IBR, Asher said.

“So there’s a long way to go,” she said.

Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, predicted that because more student borrowers will be eligible for the new repayment plans, more students are likely to be made aware of the new repayment tools by financial planners, accountants and advisers.

“There’s going to be a whole different group of people promoting it,” Delisle said.

Delisle also predicted greater use of the new Pay-As-You-Earn option because it provides borrowers with repayment options that are 33 percent lower than repayments under the old IBR.

“To the extent that people didn’t enroll in the old IBR because it did not lower payments enough or at all, I think the new class of borrowers that are eligible for Pay-As-You-Earn won’t be experiencing that same thing because the payments are so much lower,” Delisle said.