Feds try to help, but many student loan borrowers still stranded without assistance

By Jan Miller

For the Deseret News

Published: Thursday, Feb. 7 2013 6:30 a.m. MST

The federal government has made efforts to address the student loan crisis by offering repayment assistance plans such as Income-Based Repayment plan and Pay as You Earn. However, there are still many groups of borrowers stranded without help.

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Government Efforts

The federal government has made efforts to address the recent student loan crisis by offering repayment assistance plans such as the Income-Based Repayment plan and the newly revamped version of IBR, established late last year, called “Pay as You Earn.”

These options are bringing much-needed repayment relief to students and borrowers who’ve ended up with loan payments larger than what they can afford to pay upon graduating or beginning careers. They mainly provide relief for borrowers by lowering payments based on their income, and by forgiving any remaining balances after 25 years (20 years with Pay as You Earn).

Unfortunately, there are many groups of borrowers in need of assistance who cannot take advantage of these possibilities because the eligibility requirements do not include them.

Who Gets Left Out?

There are about five groups of borrowers left out of the IBR and Pay as You Earn plans.

The first group is the borrowers that do not qualify for the “Pay as You Earn” program. In order to qualify, borrowers must not have an active student loan with a balance that was taken out prior to Oct. 1, 2007, and must be new borrowers with a new loan taken out after Oct. 1, 2011.

For example, let’s say a borrower has three loans: the first from 2001, the second from 2008 and the third from 2012. This borrower would not be eligible for Pay as You Earn because the oldest loan originated prior to 2007.

In another example, let’s say another borrower has three loans taken out in the years 2008, 2010 and 2012. In this case, the borrower would be eligible for Pay as You Earn because the oldest loan was not older than Oct. 1, 2007 and his new loan was newer than Oct. 1, 2011.

Student loan balances can last between 10-30 years, or even longer, so the Pay as You Earn program doesn’t address the majority of existing borrowers.

The second group often ineligible for the recent federal repayment reforms are the borrowers who are married and find that their spouse’s income prevents them from lowering their payments with either program.

Unless a borrower’s spouse also has student loan debt, or the borrower chooses to file "single" instead of "married" jointly on taxes, the spouse’s income will likely disqualify the borrower from any potential advantages from the program.

The third group left out from this repayment assistance is the group that has unreported substantial expenses, such as medical expenses, which were not taken into consideration when calculating their payment amount for the IBR or Pay as You Earn programs.

Both the IBR and Pay as You Earn program use a basic formula for determining a qualifying payment. The main two variables within this equation are the Adjusted Gross Income and the poverty level for borrowers' family sizes in their states. Basically, the higher the AGI, in comparison to the poverty level of a family, the greater a payment will be.

Also, note that any financial responsibilities not included within AGI on taxes will not influence the amount a borrower will be required to pay under the IBR and Pay as You Earn programs.

Another sub-group to consider is the people who have an AGI significantly above $50,000 a year. These relatively high-earning folks may find the IBR program doesn’t sufficiently address their current financial situation, when their other typical expenses are taken into account (such as a mortgage, car payment and medical expenses).

This income bracket, which probably has substantial student loan debt, is less likely to benefit from income-based programs due to the amount of money borrowers already make and the reality of their other expenses.

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