More Students Turn to Loan Forgiveness Programs

Wednesday, 06 Aug 2014 06:52 AM

By Elliot Jager

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The number of student borrowers taking advantage of income-based repayment plans for college loans has doubled in one year, The Daily Caller reported.

The Income-Based Repayment and Pay As You Earn plans were established by the government to enable borrowers to pay off their tuition loans based on how much they earn and to qualify for loan forgiveness after a minimum of a decade, according to a report by the New America Foundation.

Both programs have grown because college tuition rates have far outpaced job expansion and the kinds of salaries that would make it possible for students to repay loans on their own. More people are also turning to the programs because the Obama administration has been promoting them.

Some 1.9 million Americans, about 10.5 percent of student borrowers, are enrolled in one of the programs. That's up from 950,000 participants last year, the New America Foundation report said.

"In the 3rd quarter of 2013, 14.4 percent of the Department of Education's Direct Loan portfolio was involved in Income-Based Repayment or Pay As You Earn. Now, that total has risen to 21.8 percent, representing over $100 billion," The Daily Caller's Blake Neff wrote.

The Income-Based Repayment plan is for loans taken before 2007. It caps payments at 15 percent of an earner's discretionary income with the balance forgiven after 25 years. The newer Pay As You Earn program sets payments at 10 percent of discretionary income and offers loan forgiveness at around 20 years – though less for employees in the public sector.

Some 15 percent of student loan borrowers go into outright default within several years of leaving school and are not eligible for these programs.

Even graduates earning good salaries in law and medicine are turning to the repayment programs because their tuition bills are high relative to their salaries.

Florida Republican Sen. Marco Rubio and Virginia Democratic Sen. Mark Warner have proposed legislation intended to keep students from taking out unmanageable loans. Their plan would forgive loans under $57,500 after 20 years, the Caller reported.

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