Borrower Voices Explain the Need for Affordable Student-Loan Repayment
Student-loan debt continues to be an issue of grave concern for American student borrowers. In 2014, there were approximately 41 million Americans with federal student-loan debt, up from 28 million in 2007. Outstanding debt has reached $1.1 trillion in federal student loans and $200 billion in private student loans. Last year, in an effort to make repaying student-loan debt more affordable, President Barack Obama announced his intention to expand Pay As You Earn, or PAYE, a repayment plan that allows certain student-loan borrowers to repay their debt based on their income. President Obama said that PAYE gives “graduates the opportunity to pursue the dreams that inspired them to go to school in the first place.”
Today, the Department of Education is developing Revised Pay As You Earn, or REPAYE, a new repayment plan that is slated to become the income-driven option available to federal student-loan borrowers going forward. PAYE caps monthly payments at 10 percent of discretionary income and eliminates any remaining debt after 20 years of on-time payments. Only borrowers whose income makes them eligible for a reduced monthly payment are allowed to enroll in PAYE and begin tracking toward debt elimination. As proposed, REPAYE would keep PAYE’s monthly payment standard but lengthen the repayment period to 25 years for people who borrow more than $57,500. An effort to broaden eligibility for REPAYE to all borrowers regardless of their eligibility for a reduced monthly payment is under consideration. If adopted, this change would mean that all borrowers could begin tracking toward debt elimination as soon as they enroll, rather than enrolling in the plan when a need arises and begin tracking at a later date.
In order to inform the policymakers who are debating the terms of REPAYE about the urgent need for affordable and accessible student-loan repayment, the Center for American Progress and Generation Progress—together with the Higher Ed, Not Debt campaign—collected written feedback from student borrowers who have engaged with our campaign to tackle the issue of rising student-loan debt, asking them to share their experiences. The request for feedback was designed to share important context on loan repayment from borrowers who are managing their debt today.
This column identifies some of the key insights from the 3,800 responses to the survey and allows borrowers to tell their stories in their own words. Common themes that arose include issues of repayment affordability, confusion about repayment options, and problems navigating the repayment process. Borrowers are eager to repay their debt as quickly and as easily as possible, and discussions about future repayment plans need to focus on terms that make student loans affordable and the repayment plans accessible.
When asked about the affordability of their federal loan repayments, half of the respondents said that their payments were “somewhat affordable” or “very affordable.” The remaining half believed that their repayments were “somewhat hard to afford” or “very hard to afford.” Many comments that addressed the unaffordability of loans expressed concern about student-loan obligations hindering other aspects of borrowers’ lives.
Katy from Arkansas said:
As a middle class family of four it feel[s] like we really struggle to make ends meet. My husband and I put ourselves through college. Our minimum payment is [$]550 monthly which leaves us with no money for extras or to prepare for retirement or emergencies.
Libby from Texas said:
I finished my degree at the start of the recession—my field was affected, no one was hiring, and it was impossible to find work. I even had to defer for a short amount of time. Despite being in full time employment since then, and paying back on the loans for 6 years, I still somehow owe more than I borrowed. I don’t know how I’ll ever get rid of this debt.
Student borrowers who had only federal student-loan debt were more likely to say their debt was affordable than students with both federal and private debt. Seventy percent of student borrowers with private and federal student-loan debt said that their payment was “somewhat hard to afford” or “very hard to afford,” compared with 50 percent of all respondents.
Dawn from Virginia said:
Although I am making payments on private loans and federal loans, the [Income-Based Repayment] payment plan does not take into account the amount I am paying on my private education loans.
Borrowers who left their institution without a degree were more likely to believe that their student-loan payment was unaffordable. Those survey respondents who indicated that they had completed only “some college” were far more likely to say their repayment was unaffordable than students who had completed postsecondary education. Of those who did not complete a degree, 80 percent said their payment was “somewhat hard to afford” or “very hard to afford.” Student borrowers holding undergraduate or graduate degrees expressed similar levels of affordability as respondents overall.
Roya from California said:
My student loan is over [$]29,000 and I didn’t finish school as I couldn’t afford any more loans … now I am stuck with [a] loan to repay and no degree to show for it.
Navigating repayment plans
CAP and Generation Progress asked borrowers several questions about their understanding of repayment plans and the ease of signing up for different plans. Today, there are seven repayment plans with different terms and eligibility requirements based on when a student borrowed and under which loan program. Students interact with loan servicers contracted by the Department of Education; these entities collect loan payments and process paperwork. Deadlines to establish and maintain plan enrollment differ for each borrower based on their individual circumstances. Although 74 percent of respondents indicated that they were “somewhat familiar” or “very familiar” with the repayment options, including repayment plans based on income, many found navigating the program or understanding which option they qualified for to be a problem.
Natalie from Rhode Island said:
I found very little guidance available on which type of repayment to choose, how long repayment would actually take, and how to make changes after making initial decisions.
Comments from those who indicated confusion about repayment plan requirements included statements such as that of Christine from California:
I’m a high school teacher—I will never make enough to pay off these loans. The paperwork is confusing for income based repayments and having to fill it out yearly is awful especially as I don’t make additional money each year.
Finally, borrowers were also asked to whom they talked when choosing their payment plans. The two most common responses were “[their] loan servicer”—29 percent—and “no one”—28 percent. Although some did speak to their loan servicer, many mentioned that they did not receive information on the best plan for their economic circumstances.
Christina from New York said:
I didn’t realize I would have to change my plan each year and got in trouble for underpaying after the second year. This information was not made clear to me or mentioned at all. … I hope to enroll in an income based repayment plan. I am fine paying back my loans as long as I find a plan that is clear and honest with how to repay it. I’m tired of being surprised by rules that no one makes clear.
What this means for REPAYE
Faced with worrying levels of student debt and an ever-changing and complex repayment system, borrowers must make payments, reduce their debt, and understand the options available. The Department of Education must carefully consider how the issues raised in recent negotiations would alter an already cumbersome process.
As part of President Obama’s mandate to expand affordable student-loan repayment to more borrowers, it is crucial that REPAYE offers the same borrower-friendly terms as PAYE, including capping monthly repayment at 10 percent of the borrower’s discretionary income. One of the most striking findings from this borrower questionnaire was the degree to which borrowers with private loans found it more difficult to afford their monthly payments. In designing REPAYE, the department must consider that many struggling student-loan borrowers are paying off not only federal student loans but also private student loans.
Many individuals expressed the feeling that there is no end in sight for their loan repayment. Extending the repayment period to 25 years for some borrowers, as proposed for REPAYE, would exacerbate these concerns and prolong an already long period of debt repayment. REPAYE should allow all borrowers to eliminate any remaining balance after 20 years of on-time payments, which is the current standard in PAYE.
REPAYE also should allow all borrowers to enroll regardless of their income at the time of enrollment. This broader eligibility would allow borrowers with sufficient earnings at enrollment to track payments toward forgiveness even if they never need it.
Finally, REPAYE should address confusion about repayment terms and conditions and reduce complexity so that more borrowers are able to understand the best repayment option for their circumstances. Simplifying the process by removing barriers would make these fair and affordable plans accessible to current and future student-loan borrowers.
Jessica A. Morales is a Policy Advocate for Generation Progress. She also is the alternate committee member representing students for the Department of Education’s 2015 negotiated rulemaking. Elizabeth Baylor is the Associate Director of Postsecondary Education at the Center for American Progress.