Way For Millions To Reduce Student Debt
Way For Millions To Reduce Student Debt, A program adjusts monthly payments to income, but banks don’t want you to know about it. Cheaper Student Loans. Who Knew?, In his speech at the Democratic convention, former President Bill Clinton heaped praise upon a program that the Obama administration started to help people repay their student loans. Known as “income-based repayment,” it lets borrowers adjust monthly payments down to 15 percent of their income and wipe out the debt after 15 years. “No one will ever have to drop out of college again for fear they can’t repay their debt,” Clinton said. “If someone wants to take a job with a modest income-a teacher, a police officer, if they want to be a small-town doctor in a little rural area-they won’t have to turn those jobs down because they don’t pay enough to repay the debt. Their debt obligation will be determined by their salary. This will change the future for young Americans.”
It’s notable that Clinton talked about how many people the program would help in the future. It’s actually been around since 2009. So far it hasn’t worked as well as policy makers had hoped.
Right now only 972,000 graduates-about 2.6 percent of all borrowers-are using income-based repayment. Two to three million further borrowers could qualify for the program, says Mark Kantrowitz, publisher of FinAid.org, who crunched U.S. Department of Education and U.S. Census data to devise his estimate.
Why would so many graduates with the option of paying less every month not take it?
For one thing, a lot of borrowers don’t know they qualify. To get into the program, you have to apply through the bank that services your loan, but many banks don’t tell borrowers about the program. They aren’t required to do so, and because they make more money if monthly payments are higher, they have little incentive to spread the word. Also, while companies that service direct federal loans-those in which the government is the lender-must offer income-based repayment, servicers of federally guaranteed loans issued by private lenders don’t have to offer the program.