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Many students unaware of loan repay program

Ashley Nelssophomore ColumbiCollege says she will have $45000 loans from each her four years college. | Chandler West~Sun-Times

Ashley Nelson, a sophomore at Columbia College, says she will have $45,000 in loans from each of her four years in college. | Chandler West~Sun-Times

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Updated: July 12, 2012 6:02AM

Ashley Nelson, a sophomore music management major at Columbia College, says she will have $160,000 in debt to pay back when she graduates.

Kaitlyn Mattson, a journalism student there, estimates she will have $100,000 in loans when she finishes.

Both know it won’t be easy to pay back their loans, especially on an entry-level salary.

But neither of them knew about a relatively new program that allows students to pay off student loans based on a percentage of their income once they graduate. The program is designed to make it easier for borrowers to meet monthly debt obligations even if they are earning low wages or are having trouble finding a job.

But just 700,000 of the 35 million borrowers with student debt take part in the program now, a number the Obama Administrations says is far too low.

To increase participation in an era of record student debt and record defaults on that debt, officials announced last week that they are streamlining the application process to encourage potentially millions of more borrowers to sign up. What’s more, they also plan to greatly increase outreach about the program so students — who often get overwhelmed by the complicated financial aid and student loan systems — realize there are options to help pay off the debt.

Told Saturday by a Sun-Times reporter about the program, both Nelson and Mattson say they now plan to sign up.

“I definitely would take advantage of it,” Nelson said. “It’s an awesome thing. I think it’s ridiculous students do not know about it.”

Even though Mattson said she has pushed her debtload to the back of her mind so she can better concentrate on her studies, she said she would “absolutely” use the program when she graduates. The Income Based Repayment plan originally capped loan payments at 15 percent of discretionary income when it launched in 2009. In 2010 Obama signed legislation lowering the cap to 10 percent by 2014. Last October, he issued an executive action to make the lower cap available to more borrowers by the end of this year, a move officials said could lower payments for 1.6 million borrowers.

“This could be an important tool in helping those folks have an option and avoid going into default,” Education Secretary Arne Duncan said last week.

Lauren Asher, President of the Institute for College and Success, which has offices in California and Washington D.C., said some students have reported waiting as long as long as six weeks to get the paperwork to complete the application process.

President Barack Obama’s memorandum last week allows IRS income information to be imported digitally into the IBR application, allowing it to be filled out completely online in as little as a single sitting.

Asher praised the changes. “Lots of things needed to be improved and are now in the process of being improved,” she said.

“I am very pleased the enrollment process for IBR will be simplified in a key way.”

Asher agreed there has not been enough outreach on the program, something Obama pledged to improve last week by requiring federal loan servicers to let students know of the option. Officials also will encourage colleges to inform students about it before they leave school.

Michael Reilly, executive director of the American Association of Collegiate Registrars and Admissions Officers, said the current financial aid process is cumbersome for students, leading many to make decisions that later get them into a difficult spot.

“It takes a lot of initiative on a student’s part to understand how some of these processes work right now,” Reilly said. “So anything that can provide more transparency, I think, will expand the number of participants.”

One of the ironies, Asher said, is that the program isn’t open to those that have defaulted on a loan, although it could be used by the more than five million borrowers who are late on paying off at least one loan.

“If you default you cannot use IBR, but IBR is designed to keep you from defaulting,” she said.

Contributing: AP

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