Gail MarksJarvis: Student loan borrowers have options

McClatchy-Tribune Information Services

September 28, 2015

Millions of Americans are needlessly making suffocating payments on their student loans and others are shooting themselves in the foot by ducking their payment responsibilities altogether.

Yet both would be in better shape if the U.S. Department of Education would specifically tell people with student loans that they have options that would be less painful, according to a Government Accountability Office report.

About half of people making student loan payments would qualify to pay less, but only 13 percent are savvy enough to set up payments that would be less brutal, the study found. It faults the Education Department, which also has been blamed by other studies for hiding the escape routes from people struggling with student loan debt.

The debt problems have implications for individuals with federal Stafford, Perkins and graduate school loans and the U.S. economy. About 41 million Americans have student loans, and some economists believe that the massive debt burdens are keeping individuals from starting families, buying homes, or spending more freely on items they might need or want. If individuals were struggling less to make their monthly student loan payments, they would have more money to spend — perhaps giving the economy a boost, plus giving young adults more peace of mind.

And if student loan payments seemed less overwhelming, more people would pay on time instead of shoving the bills in a drawer and hoping somehow they’d evaporate. Many don’t realize that missing payments can be a disaster — causing banks in the future to deny car loans, home loans and credit cards or charge sky-high interest rates. Even getting an apartment requires a decent credit history, including student loan payments.

One in seven student loan borrowers — or about 14 percent — defaulted on their student loans within three years of starting the repayment period after college, the GAO found as it analyzed defaults in September 2014. Borrowers are considered in default if they let 270 days go by without making a payment. In the period analyzed, about $103 billion of the more than $1 trillion of federal student loans were in default.

As job prospects and pay have remained weak in the years since the recession that ended in June 2009, the government has tried to take some of the burden off of student loan borrowers, but the message hasn’t been circulated enough, the GAO said.

Under relatively new changes in the government’s student loan program, people with federal student loans can get their payments reduced if their income is too low to handle the full payments. The so-called income-based repayment program is based on a formula that incorporates the person’s family size with income needs. Borrowers can see how the formula applies to their loans at

The trouble, according to the GAO’s study, is that if people don’t request debt relief they may not get it. An inquiry into student loan collections by the Consumer Financial Protection Bureau went even further. The bureau claimed in May that too often the servicers that collect student loan payments and answer calls from borrowers give students the run-around if they seek help and sometimes the servicers erect roadblocks that result in thousands of dollars more in payments. The servicers are under contract with the Department of Education, and the department rebutted the GAO’s findings, claiming in a letter attached to the study that the department has made progress getting more people payments based on their incomes.

Besides getting payments based on income, some borrowers are also supposed to learn from servicers that their loans can be forgiven in 20 years.

The GAO also noted that people are not being adequately informed about a program that wipes away student loans if people work in public service jobs and first make 120 payments. They can work in state, local, or federal jobs including military or police service, or as librarians or teachers for public schools, colleges and Head Start providers, to name a few participating employers in the public service loan forgiveness program.

Yet, despite the fact that about 4 million people in public service jobs will be eligible in 2017 to get their loans forgiven, the GAO said the education loan servicers have only certified about 150,000 of the people who should qualify.