Recent report finds many struggling borrowers aren’t enrolled in
income-driven repayment plans that could reduce monthly payments
PHOENIX–(BUSINESS WIRE)–Staggering student debt continues to be a challenge for millions of
Americans nationwide – and it’s harder on some student loan borrowers
The Consumer Financial Protection Bureau (CFPB) recently released its
annual report on student loan complaints, revealing that more than 5
million people who borrowed money through the Federal Family Education
Loan Program (FFELP) are behind or in default on their loans. FFELP,
which was comprised of primarily private lenders making federally
guaranteed student loans, ended in 2010, but students who borrowed money
through the program still make up nearly a third of all student loan
debtors and owe more than $370 billion combined.
What’s more, the rate of default and delinquency is considerably higher
for FFELP loans than the broader student loan market, and only five
percent of FFELP borrowers are enrolled in any sort of income-driven
“Consumers in default or delinquency experience major obstacles in
achieving financial milestones like buying a home,” said Jessica
Ferastoaru, a student loan counselor with Take Charge America, a
national nonprofit credit counseling and student loan counseling agency.
“But borrowers – even those in default – have several options for
repaying their debt and restoring their financial health.”
CFPB’s report raises concerns about whether FFELP loan servicers have
adequately informed borrowers about their repayment options. Despite
wide availability of income-based repayment plans, 95 percent of people
with FFELP loans are not enrolled.
“Many people simply aren’t aware such options exist, or assume only a
handful of federal loans are eligible for alternative repayment
Ferastoaru summarizes several student loan repayment options:
Direct Consolidation Loans can assist FFELP borrowers. They may
be able to consolidate their loans through this program in order to
qualify for additional repayment options.
Pay As You Earn is an option for students with a partial
financial hardship. It caps loan payments at 10 percent of
discretionary income and forgives remaining balances after 20 years.
Income-Based Repayment plans are based on income, family size
and residence, and are usually capped at 15 percent of a borrower’s
income. For borrowers who took out loans on or after July 1, 2014,
balances are forgiven after 20 years. Students who borrowed money
before that date receive forgiveness after 25 years.
Income-Contingent Repayment plans calculate payments based on
income, family size and total amount borrowed, but the monthly payment
amount is adjusted annually to account for changes in income and
family size. The repayment period can stretch to 25 years, after which
any remaining balances are forgiven.
Public Service Loan Forgiveness Program is an option for people
who work full-time in the public or nonprofit sector. Loan balances
will be forgiven after 120 qualifying payments. A separate program for
teachers allows borrowers to qualify for up to $17,500 in forgiveness.
Loan Forgiveness Programs for Military offer servicemen and
women up to $65,000 in loan forgiveness.
Loan Rehabilitation helps borrowers who have defaulted on
federal student loans. The borrower and lender agree on a reasonable
payment plan, and the borrower makes nine consecutive payments over a
10-month period. At that time, the loan is considered rehabilitated
and may be eligible for other repayment programs.
Borrowers seeking more information about loan repayment options may
visit Take Charge America at studentloans.takechargeamerica.org
or call (877) 784-2008.
About Take Charge America, Inc.
Founded in 1987, Take Charge America, Inc. is a nonprofit agency
offering financial education and counseling services including credit
counseling, debt management, student loan counseling, housing counseling
and bankruptcy counseling. It has helped more than 1.6 million consumers
nationwide manage their personal finances and debts. To learn more,
or call (888) 822-9193.
Andrea Aker, 602-339-7339