How The Heck Do You Pay Off Your College Loans?

This month the federal government launched yet another federal repayment plan.

By Eric Westervelt

Bjorn Rune Lie/Ikon Images/Corbis

NPR Ed, December 18, 2015 — Even some of those seeking the nation’s highest office have weighed in on college debt with payment plans and relief proposals. Voters and the media ask for details on the campaign trail. And that highlights a remarkable shift: Policymakers and politicians are paying attention to this issue like never before.

And it’s not as simple or cynical as trying to woo the important student vote. The fact is, the student loan burden in America is second only to mortgages in consumer debt. The government estimates that some 41 million students together owe more than $1.2 trillion.

Our friends at NPR and WBUR’s midday news show Here & Now recently explored this giant problem and looked at strategies to ease the pain and navigate the debt jungle. We’ve heard from students, college presidents, counselors and journalists.

There’s also a confusing maze of repayment plans out there that aim to reduce the pain and risk of going into default. I reached out to Lauren Asher, president of the nonprofit Institute for College Access and Success, or TICAS, to help break it down.

This month the federal government launched yet another federal repayment plan. It’s a revised income-based or income-driven plan called REPAYE. What is new here?

One of the most important changes is that you no longer need to have a certain debt-to-income ratio or to have borrowed at a particular time to qualify. All federal direct loan borrowers can enter REPAYE if they want to. It will give them the assurance that their payments will be capped at 10 percent of their discretionary income.

As NPR Ed has reported, there are already multiple repayment options out there, including four other income-based repayment plans. Is this really a big improvement or just an iteration of what’s been out there a long time?

It’s a big improvement, because for many borrowers this will give them access to a lower monthly payment than they could get through other income-driven plans or other traditional plans for federal student loans.

There is criticism of income-driven plans. You’re essentially replacing one burden with another. You’re spreading out the payment timeline and paying more in interest over time. Your response?

They are not going to be the perfect fit for everyone. But income-driven plans are a critical resource for students who may not be able to afford repayment in a 10-year plan or some of the other traditional plans. And like any kind of loan, when you extend repayment, you may be increasing the total cost of the loan at the same time you’re lowering the monthly payment.

On the other hand, these income-based plans give people a light at the end of the tunnel. After 20 or 25 years, depending on the plan, if you still owe anything, the remainder will be discharged. Then you can move on to focus on saving for retirement, starting a business or saving for your own children’s education.

REPAYE is the only income-based plan that makes a distinction between undergrad and graduate debt. Under REPAYE, if you have undergrad debt after 20 years, the remainder goes away?

If you have only undergraduate loans after 20 years of payments, if you still owe anything, the remainder will be forgiven. If you have any graduate loans, it will be 25 years for all your loans before you’ll qualify for forgiveness. Now if you work for a public or nonprofit employer, it is possible you could get forgiveness after 10 years through the public service loan forgiveness program.

Five income-driven repayment plans. Why doesn’t Congress just consolidate them all into one fun, easy-to-use plan?

There is growing interest in simplifying repayment options for federal student loans. There are too many plans — not just income-driven plans, but other types of plans. It is too hard for borrowers to navigate.

But borrowers need to know you don’t have to get a Ph.D. in public policy to benefit from them. All you have to do is go to studentloans.gov and log in, and you can see what your payments will be in all the different plans, and you can ask to be enrolled in the one that you qualify for that has the lowest payment. There is a student loan estimator at the Department of Education, and we have a simple chart that shows you how the different plans work and links on how you can apply.

www.npr.org/sections/ed/2015/12/18/455805235/how-the-heck-do-you-pay-off-your-college-loans