The Obama administration is making good on part of its promise to increase college affordability, as two federal agencies are partnering with the financial and tax software company Intuit to raise awareness of income-driven student loan repayment options, the Department of Education announced Friday.
President Barack Obama announced in August, as part of his higher education agenda, that his administration would work to raise awareness about different student loan repayment options. In the same speech, Obama proposed a plan to tie federal financial aid to colleges' performance on measures of quality and outcomes.
During tax filing season, the Department of Education, the Department of the Treasury and Intuit plan to feature a banner on Intuit's TurboTax Online software that would redirect borrowers to the Department of Education's "Repayment Estimator," which helps users choose between several income-driven repayment options, according to a release.
"While the Obama administration is working to expand access to higher education and make earning a college degree more affordable, rising levels of student debt mean that we must continue to provide student borrowers with the tools they need to successfully repay their loans," Treasury Secretary Jacob Lew said in a statement. "Tax filing season is an opportunity for borrowers to take a big-picture look at their personal finances and check their eligibility for repayment options, including income-driven plans, and enroll in one that meets their family's needs."
Student borrowers often struggle to repay their loans after graduating, but just slightly more than 10 percent of all federal loan borrowers are enrolled in some type of income-based repayment plan, according to the Consumer Financial Protection Bureau. Unlike private loans, which can be difficult – if not impossible – to refinance at a lower interest rate, federal loans have some built-in consumer protection measures to help borrowers through financial hardships.
While the standard student loan repayment plan sets payments at a level that would allow the borrower to pay off his or her loans in 10 years, there are three other plans based on the borrower's income that could significantly reduce, if not temporarily eliminate, monthly payments for those struggling to make them.
Under the "Pay As You Earn" plan, for example, monthly payments can never exceed 10 percent of the borrower's income, and any leftover debt after 20 years is forgiven. But CFPB data shows fewer than 50,000 borrowers are enrolled in that program.
Under the Income-Based Repayment plan, borrowers' payments are set based on income and family size and are adjusted annually, based on changes in those two factors. But monthly payments can never exceed the amount a borrower would pay under the 10-year Standard Repayment Plan, with the possibility that any remaining debt may be wiped away after 25 years of qualifying repayment. Under the same plan, those working in public service have the chance of loan forgiveness after 10 years.
But according to the CFPB, just 6 percent of the 15 million borrowers currently in repayment, forbearance or deferment are enrolled in this plan.
"Too many borrowers are struggling to pay back their student loans, which is why this collaboration aimed at sharing information about income-driven repayment plans is so important," Education Secretary Arne Duncan said in a statement. "Building on ongoing outreach efforts, the administration will continue to work to ensure that borrowers are aware of their options that can help them responsibly manage their student loan debt."