This month, the Obama Administration began sending email notices to over three million federal student loan borrowers. The Department of Education is targeting four groups: those whose six month grace period is now ending, borrowers who have fallen behind in their monthly payments, loan holders with a higher than average amount of debt and those who are already in deferment due to financial hardship or because of unemployment. Of particular interest seems to be those borrowers with total loan amounts exceeding $25,000. Everyone in these categories should receive a notice by mid-December.
This push is part of the suggested reforms proposed by President Obama and his Education Department in August of 2013. The purpose behind it is to remind the loan borrowers of the options available under the government’s Income Based Repayment(IBR) programs and to hopefully increase the number of federal student loan holders in those programs. However, it is not the first attempt to encourage student loan borrowers to take advantage of the Federal Repayment Programs.
The Income Based Repayment Program offers many benefits:
- Affordable payments based on your discretionary income, not loan size and interest rates
- If your payment does not cover the accumulating interest on your Direct Loan, the interest will not be capitalized for a period of three years
- Forgiveness at the end of your term if any balance remains on the loan
- Payments in the IBR qualify for public service loan forgiveness on a Direct Loan
Despite previous attempts over the last three years, enrollment in one of these programs remains below seven percent of all federal student loans currently in some form of repayment. In fact, overall household debt has increased to $11.28 Trillion according to the Federal Reserve Bank of New York, with student loan debt being almost ten percent of that at $1.03 Trillion. Nearly twelve percent of those student loans are behind in payments for 90 days or more.
This is particularly bad for a still recovering economy. The very people who need to take the risk of starting businesses and begin buying their first cars and homes are unable to do so because of the amount of monthly debt they have. Worse, student loans are not like mortgages and cannot be discharged under current bankruptcy laws and once graduates begin to get behind on their payments, the resulting damage to their credit rating further drags out the time that they are unable to help grow the economy. All of this drives the President to try and keep these borrowers in the ‘black’ as it were and creating new jobs and start-up businesses.
Most of this renewed push for Income Based Repayment and other repayment plans is trying to keep borrowers active in this economy. Some of it, unfortunately, is also to combat recent bad attention from the media given to the sometimes shady recovery practices of Sallie Mae and other loan servicing companies.
While the Education Department is again actively advertising Income Based Repayment, it falls to the loan servicing agencies contracted with the Department to work with the individual borrowers. The problem with this is that it is these same agencies also collect on their own defaulted student loans. It has been pointed out on many consumer advocate websites and by an increasing number of government officials that a loan in default can result in much more money going directly to the loan servicer as opposed to a student loan in good standing. Because of this obvious conflict of interest, many politicians and consumer advocates have questioned the ability of the servicing agencies to remain unbiased in their business practices and operate the different government repayment plans with any transparency.
Even so, the National Consumer Law Center believes that this new spotlight on the repayment programs will be useful in educating borrowers on the Income Based Repayment Program. The trick, in their opinion, will be getting them enrolled. One of their lawyers, Deanne Loonin, stated that “Once somebody knows about it, we need to do a better job of helping people get into the program and stay.” Agreeing with her is the President of College Access and Success, Lauren Asher felt that “This is a positive step towards making sure that people who need to know and might benefit from the income based programs are getting the information they need. We’re happy to see this is moving forward.”
Even happier are the student borrowers and their families. Getting more federal student loan borrowers enrolled into Income Based Repayment or another repayment plan helps not only the graduate today, but also the future they intend to create for themselves. Fortunately, the Obama Administration has also recognized that reducing the load of debt and raising the graduate’s credit rating back where it belongs also serves to support the local, state and national economies.
Lori Youngston is currently a writer for www.StudentDebtRelief.us w
hose primary objective is to educate and assist student loan borrowers on the many federal programs available to them, including student loan forgiveness.