About the Program
To learn more about income-based repayment for fedearl students loans and apply, go online to studentloans.gov.
Americans owe more than $1 trillion in student loans — a total that surpasses credit card debt — but millions who are past due on their payments are not taking advantage of a federal program designed to make their debt manageable.
The federal income-based repayment (IBR) program reduces eligible borrowers’ monthly payments based on income, and it forgives the balance of loans after up to 25 years. Those who owe more than they earn in a year likely are eligible. And those working in public service fields, such as teachers, can have their loans forgiven after 10 years.
“It’s not just that the payment is capped for your earnings, but there is a light at the end of the tunnel,” said Lauren Asher, president of The Institute for College Access & Success.
Student debt has nearly tripled since 2004, according to the Federal Reserve Bank of New York, and college students are borrowing larger amounts. Add the Great Recession to that mix and recent graduates are finding fewer job opportunities and lower or stagnant wages.
As a result, according to a poll by Dēmos, young Americans are delaying important life decisions, such as buying a house (46 percent) or starting a family (30 percent).
More than 1.3 million borrowers were using the IBR program as of December 2012, according to the U.S. Department of Education. At the same time, about 6.7 million people were more than 90 days behind on their loans, according to the Federal Reserve Bank. And although the IBR program has been available since 2009, the number of borrowers defaulting on their loans increased 31 percent in just two years, according to Dēmos.
“Clearly there needs to be more outreach, not just for those first leaving school, but also to people who are already in repayment on their loans and are struggling,” Asher said.
“Not everyone who is eligible will decide that IBR is the best option for them, but it’s crucial that they know it’s out there.”
‘A manageable level’
Katie King has been using income-based repayment since she joined the staff of the Dayton Early College Academy nine years ago. King loves that at DECA, a charter school for Dayton high school students who may be the first in their families to attend college, she can help her students, who sometimes call her “mom,” and their families, even after they leave DECA and go on to college.
But on a new teacher’s salary, the payments for the loans she took out to earn a bachelor’s degree from Miami University and a master’s degree in educational leadership from the University of Dayton were challenging, especially on top of living expenses and the money she spends each month on her students.
King, a math teacher, also has two private loans, which are not eligible for IBR. She has had $8,000 on her federal Perkins Loan forgiven because she is a teacher. She still owes $16,000 on her federal and private loans.
King said she hopes it will be easy to complete the paperwork to have the remaining balance of her federal loan forgiven in a year.
The process was made easier by President Barack Obama’s administration, and the president launched an effort to better publicize the program last summer. Still, Asher said more outreach is needed.
Dayton Early College Academy math teacher Lisa Halpin said she looked into income-based repayment and loan forgiveness after hearing other teachers talk about it. Because of a special program for certain teachers, the Wright State University alumnus said she was able to have more than $17,000 in loans forgiven after five years teaching at DECA.
She said knowing that the loans would be forgiven helped get her through difficult times in the repayment process and challenging times at her job.
Halpin is not alone in those feelings. “We hear from borrowers who are incredibly relieved to realize they can actually get their payments to a manageable level,” Asher said.
Asher said options and relief in repaying student loans are important parts of the burden of student debt. In just one generation, Americans have shifted from less than half of four-year graduates taking out loans to two-thirds borrowing and owing more.
Robert Hiltonsmith, a policy analyst for Dēmos, said much of the outstanding $1 trillion in student debt is not in repayment yet, so the effects of the burden on young people will only grow in the future.
“It seems really clear that this is already having a huge effect on the economy and that effect is only going to get larger,” he said.
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