The U.S. Department of Education announced this week that it’s reaching out to about 3.5 million federal student loan borrowers who are carrying higher than average debt or showing signs of financial distress. The goal of the Department’s email campaign is to make sure these borrowers know about income-driven repayment options that might make their monthly payments more affordable and keep them from defaulting.
We’re thrilled that this piece of President Obama’s college affordability plan is being put into action. With rising student loan default rates and a job market still recovering from the financial crisis, the need is clearly urgent. Our Project on Student Debt developed the policy framework and spearheaded the coalition to create Income-Based Repayment (IBR), which became available to federal loan borrowers in 2009. We have since repeatedly called on the Department to do more to make sure borrowers are aware of IBR, including targeted outreach along the lines of this new effort.
Simply put, people can’t benefit from IBR and related plans like Pay As You Earn unless they know about them. They need timely, accurate, and usable information before extended forbearances cause their debts to balloon, delinquencies damage their credit scores, or defaults lead to even more severe consequences.
With that in mind, we think the Department could easily increase the impact of its outreach by taking the following steps. We suggest a couple of improvements that should make borrowers more likely to act on the important emails they’re getting from the Department:
Tell borrowers about the light at the end of the tunnel. The Department’s sample outreach email fails to mention that after 20 or 25 years of repayment in an income-driven plan, any remaining debt can be discharged. This is a crucial feature of income-driven plans. But the sample email makes it sound like there is no time limit on payments, unless you qualify for Public Service Loan Forgiveness. It says, “When you make payments based on your income, your loans are paid off over a longer period of time than the standard 10-year plan. While this reduces your monthly payment amount, it also increases the total amount you pay over time. But if you work in public service, you may qualify to have your remaining loan balance forgiven after 10 years of payments.” The fix? The Department’s outreach should tell borrowers that income-driven plans not only lower your payments, they also cancel any debt remaining after 20 or 25 years in repayment.
Make it easier to for borrowers to get income-driven payment estimates. The sample email also provides a link for borrowers to view estimates of payments in income-driven plans. But when you click on “repayment estimator” you find yourself on the Department’s generic home page for federal loan borrowers: studentloans.gov. The only way to see your estimated payments under all plans at once is to sign in to this site using your PIN, but there is no mention of a “repayment estimator.” If you don’t know what you’re supposed to do, you can easily get lost. The fix? Make the link go directly to the repayment estimator, and ultimately make the estimator available for prospective borrowers who don’t have PINs.