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Inequities and Confusion Around Help on Student Loans

Helping young people being crushed by their student debt is a nice idea. It's also easier said than done, even when policymakers mean well.

The New America Foundation (NAF) released an analysis criticizing recent changes the government made to its Income-Based Repayment (IBR) plan for student loans. Introduced in 2007 under The College Cost Reduction and Access Act, IBR joins other existing options available to students when they must begin paying off their loans.

In the "Old" configuration, IBR limits the amount a qualified borrower must pay on a federal loan to 15% of their income. The government expunges any remaining debt after taking that 15% for 25 years. The Health Care and Education Reconciliation Act of 2010 shaves that 15% down to 10%, and reduces the 25 years until debt is expunged to 20. This is the "New IBR."

The "New IBR" treats "[M]iddle and high-income borrowers who attend graduate and professional school" to "significant new benefits," argues NAF. Low-income borrowers, however, “will see minimal new benefits" despite the fact that they need help most; they are the most likely to default on student loans. Meanwhile, middle-income borrowers who elect not to take on hefty sums of debt "will actually pay more and for longer due to the pending changes," should they choose to enroll in an IBR plan.

It's like a casino; high rollers who take big risks get comped.

Here is where it gets tricky: Originally, students who took out federal loans after July of 2014 could enroll in "New IBR." Then, in October of 2011, an executive action called "Pay As You Earn" (PAYE) made the "New IBR" available to anyone who took out money for student loans as early as 2008 instead of 2014.

If you're confused about whether you qualify for the "Old," "New," or "Any" IBR whatsoever, let alone whether your student loans are public or private, get in line.

The latest annual report from The Consumer Finance Protection Bureau (CFPB) student loan ombudsman Rohit Chopra alludes to an "[O]verall confusion between private and federal student loans" on behalf of students. When the hour for repayment arrives, "many private student loan borrowers ask for a form of Income-Based Repayment.” These students took out private loans under the mistaken assumption that they could enroll in IBR when it came time to repay them.

Don’t expect the people lending you money to have a clearer idea about any of this, either. Chopra indicates that some loan servicing personnel are almost as ill-informed as the students taking them out. They "may not be fully aware of all policies or incentive plans available to private student loan borrowers," such as IBR.

Whether you hail the IBR plan as a stroke of alchemical genius or the latest regulation induced migraine, the debate remains useless to indebted students who either do not know about it, or cannot enroll because their loans are private.