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Vulnerable Student Loan Borrowers at Risk of Missing Out on IDR Benefits

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

Student loan debt relief has been a top priority for the Department of Education (ED), with the Biden administration pushing for a host of changes aimed at improving borrowers’ experience. But the borrowers who could benefit most from some of these initiatives aren’t getting the message, according to a new report.

As borrowers prepare to resume repayment, a report from New America shows troubling signs that many vulnerable borrowers are unaware of available repayment options that could significantly lower their monthly payments. This comes at a time when the Biden administration is proposing to overhaul income-driven repayment (IDR) in a way that could prove even more useful to those borrowers.

The newly proposed IDR plan would base payments on a borrower’s income and family size, and could lower or in some cases allow low-income borrowers to have $0 monthly payments. Specifically the proposal would eliminate negative amortization, allow pre-consolidation payments to count as payments toward forgiveness, and provide forgiveness for low-balance borrowers at 10 years.

New America conducted a survey in 2022 that included interviews with 1,156 student loan borrowers and provided evidence that vulnerable borrowers who could benefit the most from repayment relief — low-income and low-balance borrowers, those in default, and those approaching retirement — were at highest risk of missing out on these new benefits.

As ED moves forward with implementing its proposed changes to IDR, the authors emphasized that targeted communication will be key to ensure these borrowers can reap the benefits of the new plan.

According to the survey, roughly 42% of borrowers with incomes under $30,000 said they did not know about IDR, compared to under a quarter of borrowers in higher-earning groups.

About half of borrowers currently in default said they had not heard of IDR, compared with roughly one-quarter of other borrowers who had defaulted at some point in time or had never defaulted at all.

Finally,borrowers over age 60 were less likely to have heard of IDR than younger borrowers: 36% of those borrowers did not know about it, compared to 26% of those under 30 and 23% of those ages 30-44.

One area of surprise in the survey was that there were similar percentages of borrowers by race — 74% of white, 73% of Black, and 71% of Latina/o borrowers — who reported knowing about IDR.

“This may seem surprising, given the well-documented disparities within the student loan system and the fact that people of color are overrepresented among low-income borrowers and those currently in default, both groups less likely to know about IDR,” the survey said. “However, high IDR awareness across groups may be explained by non-white borrowers’ higher probability of having ever defaulted.”

According to New America’s survey, 71% of white borrowers reported never defaulting, compared to 44% of Black borrowers and 52% of Latina/o borrowers.

New America included a list of recommendations to help improve borrower outcomes and urged policymakers and advocates to consider efforts to automate access to IDR enrollment, adapt materials for vulnerable borrower populations, and to engage in widespread communication and outreach efforts with trusted partners.

Further, the paper from New America urges for oversight of student loan servicing contracts and to increase funding for FSA to ensure the office has the necessary resources to implement the new IDR plan and to ensure that vulnerable borrowers have the support they need to enroll.

A recent NASFAA task force has developed a toolkit to help schools assist borrowers in preparing to resume or begin repayment, select the right repayment plan, as well as how schools can prepare for potential operational and accountability impacts that the resumption of repayment will have.

 

Publication Date: 5/15/2023


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