Still, researchers at the GAO say the gulf between participation and eligibility suggests that borrowers are not receiving sufficient information about so-called income-driven repayment plans. It is ultimately up to student loan servicers, the middlemen who collect and apply borrower payments, to make people aware of repayment options.
Companies such as Navient, Great Lakes and American Education Services are paid millions of dollars by the federal government to not only handle payments but also answer questions and help people avoid defaulting on their loans.
The GAO found that while servicers make information about income-driven plans available through customer service representatives and Web sites, borrowers have to actively it seek out. And even when servicers contact people who are falling behind on their payments about repayment options, the information is often inconsistent, according to the report.
“Increasing enrollment in income-driven repayment plans is a potent weapon to tame the student loan default crisis,” said Rohit Chopra, senior fellow at the Center for American Progress. “Today’s report provides further evidence that servicers may be hiding the ball to protect their bottom line.”
Several of the largest servicers said they were not authorized to discuss their portfolio of federal loans. Navient, however, said the report failed to capture everything servicers and the department have done to encourage borrowers to enroll in income-driven plans.
“We help millions of borrowers successfully repay their education loans,” said Navient spokeswoman Patricia Nash Christel, in an email. “We promote awareness of federal repayment plan options through more than 170 million communications annually, including mail, email, phone calls, videos and text messages.”
The government’s flexible repayment plans are designed to prevent borrowers from defaulting on their loans, a problem faced by about one in seven people repaying college debt. Defaulting on student debt can severely damage a person’s credit rating, making it much harder to buy a car or a house.
Plans vary based on the type of federal loan, and only loans provided by the government are eligible. One of the most widely available plans is what’s known as the income-based repayment (IBR) program, which covers new and older loans. It caps payments to about 15 percent of your income and forgives any balance that exists after 25 years. The calculation is based on your discretionary income, or whatever you earn above 150 percent of the federal poverty line ($17,505 for a single person).
According to the GAO, income-driven plans are playing a critical role in reducing defaults on federal loans. Among borrower who entered repayment from 2010 to 2014, less than 1 percent of those enrolled in the plans had defaulted on their loans, compared to 14 percent of people in the standard 10-year repayment plan.
“When you look at the difference in default rates in the report, it’s very likely there are more borrowers out there who would benefit from an income-driven plan,” said Lauren Asher, president of the independent nonprofit Institute for College Access and Success (TICAS).
People with limited means are taking the most advantage of income-driven plans, with three-quarters of those enrolled earning less than $20,000 a year in 2014, according to the report. That flies in the face of conservative criticism that the plans are a give-away to well-off graduates, said Sen. Patty Murray (D-Wash.), the ranking member on the Senate Education Committee, who commissioned the GAO study.
“While some of my Republican colleagues have attacked these important debt relief options and targeted them for short-sighted budget cuts,” she said, “this report shows that not only are these plans serving the individuals who need the most help, we should be expanding efforts to help borrowers who are struggling under the crushing burden of student debt.”
To be sure, the GAO study does not capture some of the more recent data on enrollment in income-drive plans. The Department of Education released a report in August that showed that use of the plans has gone up 56 percent since last year, with 3.9 million borrowers enrolled, signaling that outreach efforts are working.
Keeping people enrolled in the plans, however, is proving to be a bigger problem. Hundreds of thousands of borrowers are falling out of income-driven plans for failing to verify their income every year, undermining the effectiveness of the program. At least 57 percent of people enrolled in the program as of October 2014 did not re-certify on time, according to the department.
Although people might simply be forgetting the deadline, the Consumer Financial Protection Bureau worried that student loan servicers are not doing their part to keep them on track. The bureau is asking servicers to explain how they make sure borrowers have the information needed to stay in the program.
Meanwhile, the department is running a pilot program to figure out the most effective ways to get people to verify their income every year. It is also working on a system to let servicers access tax information to automatically re-certify borrowers.
In the past year, the department has taken some steps to encourage its servicers to work harder to reduce late payments and outright defaults, including aligning pay more closely to performance, James W. Runcie, the chief operating officer at the department, noted in his response to the GAO study.
Department spokeswoman Denise Horn said,”There is more work to do which is why we continue to make sure borrowers are aware of their repayment options.” But, she pointed out, “We are seeing tremendous progress in the past year alone … more than 5,000 borrowers have enrolled in income-driven plans daily. Delinquency rates and default rates have also dropped.”
Critics of the administration’s student loan policies say the mushrooming options available to borrowers may be creating more confusion and ultimately undermining the effort. There will soon be five repayment plans tied to income, once the department finalizes the latest revision of Pay as You Earn. And that’s not counting the suite of other repayment plans that exist.
“This thing is just really complicated and it requires a lot of information back and forth between the borrower and servicer,” said Jason Delisle, director of the federal education budget project at the New America Foundation, a think tank. “There are three parties involved — borrowers, servicers and Congress — and I think they share equally in the blame if the program is running sub-optimally.”
Asher of TICAS agrees the repayment system is complex and needs to be streamlined, but it is still an important resource. “These plans are working as intended; they are serving low-income borrowers,” she said. “With the current mix of plans, more borrowers need to know about these programs.”
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