By Tamar Lewin
When President Obama last month announced proposals to make college more affordable, many critics focused on his plan to rate colleges based on measures like tuition, graduation rates, and the debt and earnings of graduates, and eventually to link financial aid to those ratings.
Largely overlooked was a more immediate change that could make a dent in the rising number of student-loan borrowers going into default. Starting next month, the Department of Education will contact borrowers who are struggling to repay their federal loans to make sure they know all the options available to them.
“We think there are lots of people who could benefit from our income-based repayment programs but haven’t signed up, and we want to get to them before they default,” said Arne Duncan, the education secretary. “The challenge is getting the word out.”
To do that, the department is planning to send emails to those who seem most likely to benefit from the programs, explaining debt-relief plans based on the borrower’s income.
Efforts to rein in student debt, now at more than $1.1 trillion, and make college more affordable have been central issues for the Obama administration. It has expanded debt relief for low-income borrowers with a Pay as You Earn program for recent graduates, and simplified enrollment by putting the application online and allowing applicants to import information from their tax return.
Once enrolled in a program, low-income borrowers with high debt pay a percentage of their discretionary income every month, and after a certain time period — 20 years in the new program, 25 years in older plans and 10 years for those in public service jobs — the remaining federal debt is forgiven.
Of course, income-based programs have a downside: because the repayment period is longer than the standard 10 years, except for those in public service jobs, interest costs are higher.
Education Department officials stress that the programs are not meant for all borrowers, but as a safety net for those struggling with education debt. That is an ever-larger group as debt loads and defaults keep rising.
Yet, enrollment in the programs has been modest. Currently, about 1.6 million people are in the income-linked debt-relief programs. But about 600,000 borrowers defaulted during the last fiscal year — many of whom might have been able to avoid default if they had been in the programs.
“There are a lot of people who still don’t know about these programs, so I think getting in touch with people who are falling behind will help, although I don’t know how much,” said Lauren Asher, president of the Institute for College Access and Success, a nonprofit group that supports the president’s outreach plan. “No one knows how many people are eligible, since we don’t have data on borrowers’ income. But we do think there are many more people who could benefit.”
One reason for the relatively low enrollment may be confusion about the different options: income-contingent repayment, income-based repayment, public service loan forgiveness and pay as you earn.
“It’s like filing your taxes, and you almost have to be a genius to figure out what to do,” said Sandra Ransfer of Renton, Wash.
Sandra Ransfer and her husband, Kenneth, both 56, have complicated student-debt histories, with undergraduate loans, a past default, and more loans and a deferral while Kenneth Ransfer attended divinity school. Now a full-time pastor, his loan payments resumed last summer. But their debt situation remains muddled.
In an interview, Sandra Ransfer, who handles the family finances, initially said they were enrolled in the income-based repayment program. But later that day, after checking with their loan servicer, she discovered they were not.
“It’s a great idea to get in touch with people who are beginning to get in trouble,” she said. “I just wish they would send out a one-page thing, at the beginning, explaining everything.”
Some unemployed borrowers with no income and low-income workers with large families can get credit though they pay nothing each month.
But critics say the programs sometimes provide an overly generous windfall for graduate students who borrow large sums under the Grad Plus program, then go into nonprofit jobs that qualify for the public service loan forgiveness program. Such borrowers may have $100,000 or more in loans, pay a few thousand dollars a year for 10 years, then have the bulk of their debt forgiven.
Georgetown Law School, for example, will make the 10 years of payments for graduates who go into low-paying public interest jobs, and then the remaining debt will be forgiven by the government — giving those borrowers a free legal education.
Duncan said that getting 10 years of public interest work from a young lawyer is a benefit to society. But administration officials also said that they would work with Congress to ensure that program benefits go to the neediest borrowers and that they might consider limits on how much can be borrowed and forgiven.
For some, the debt-relief programs may be what makes a public interest job possible.
Doug Skelton enrolled in the income-based repayment after he graduated from law school last year with $80,000 of debt. Skelton had trouble finding a law job — he failed the California bar exam on his first try — and worked odd jobs for several months. Then he began volunteering at the Napa County Public Defender’s Office in hopes of landing a job.
Last month, with no income, he made no payment. But recently, the volunteering paid off with a full-time paid job.
“I’ve got an office and business cards, and I feel like I’ve got my dream job, which I would never have gotten if I hadn’t been a volunteer,” he said. “Next month, I’ll be making a payment.”
The amount is still unclear. Skelton applied for the Pay as You Earn Program, but he was turned down because his loan dates were not within the specified period. So he will have to consolidate his loans and reapply. Meanwhile, his loan servicer changed, and his application had to be restarted.
“I’m a lawyer, but it hasn’t been easy to navigate the system,” he said.