A proposal from the federal government could provide a better path toward student loan debt repayment, but a new survey finds many borrowers don’t know about this option.
While the fate of the Biden Administration’s debt erasure plan is in the hands of the U.S. Supreme Court, income-driven repayment plans offer the next best option for former students. Through such plans, people pay based on their income rather than the amount they borrowed.
Lane Thompson, student loan ombuds for the Oregon Division of Financial Regulation, said a proposal from the U.S. Department of Education would make this type of plan even more attractive. “Let people keep a higher percentage of their earned income, be a smaller percentage of monthly income, and allow for forgiveness after 10 years, rather than 20 or 25,” Thompson outlined.
However, a survey from New America found the people who would benefit most from income-driven repayment plans do not know they exist. According to the report, more than 40% of low-income borrowers had not heard of the plans.
Thompson stressed it is a problem. “It really is an issue that more folks don’t know about these,” Thompson noted. “I think it would be to the benefit of everybody if we knew more about the income-driven repayment plans, as borrowers.”
Thompson added borrowers also should know about the Fresh Start program. The temporary program gets people out of default and removes the default from their credit report. Borrowers need to contact their loan provider to access the program.
Loan repayment is likely to begin later this summer.