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Whether or not you agree with President Biden’s Executive Order on student loan forgiveness of up to $20,000 per borrower, one thing is certain. Management has become more complex.
Millions of borrowers are no longer aware of the federal rights programs available to help them manage their debt. , it will not change much.
The Education Data Initiative estimates that an average of 15% of student loans default. Millions of defaulted borrowers have shattered credit scores and face wage garnishments and tax refund withholdings. Default seniors can even grace social security checks.
Still, the default can be avoided almost entirely. Instead of paying up to 25% of their disposable income as the maximum foreclosure allowed by the U.S. Department of Labor, that same borrower enrolls in an existing income-driven repayment plan that can lower their monthly bills by up to 10%. can. of disposable income. Additionally, borrowers below her 150% of federal poverty level are eligible for a $0 monthly payment.
The benefits of an IDR plan go beyond your monthly cash flow. Borrowers facing wage foreclosure will lose part of their salary until the debt is paid in full. A borrower who makes his IDR payments for 20 or 25 years, depending on the repayment plan, will be forgiven the remaining balance.
IDRs can be a long road, but they offer a viable path for borrowers to get out of student debt. fair on the point.
So why have millions of college-educated borrowers defaulted when better options exist?
First, there is a lack of effective communication between the US Department of Education, loan servicers, and borrowers. The student defaults to her 10th consecutive year amortized repayment plan. Second, the federal repayment flexibility is a strength and a natural choice, but the system is overly complex.
Poor communication and complexity create a vicious circle. Each program adds complexity to the system as new programs are created to make student debt more manageable.
A recent Pew Charitable Trust survey found that one in four federal student loan borrowers were unaware of the existence of an IDR plan. If the borrower continues to struggle to understand these programs, it makes no sense to add a new her IDR plan with a lower percentage or a shorter exemption period.
Unfortunately, tax law is now much more complicated than student loan regulation, but filing tax returns is much easier than figuring out student loan repayment strategies. The main reason is that there are often cheap commercial applications (think Turbo Tax) for converting Byzantine rules. Similar student loan applications and tools exist.
The Department of Education needs to cast a wide net to get information to the most needy borrowers. We need to advocate and promote awareness of the many public and private tools available to help borrowers navigate their student loan options. This is not a problem looking for a solution. It is a solution that calls for awareness and empowerment, and governments should strive to use all available resources. Now is the time for creativity. •
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Lux is an attorney and founder of Indianapolis-based The Student Loan Sherpa. This her website is dedicated to student loan education, strategies and borrower advocacy.
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