Today marks the first day that Income Based Repayment (IBR) will be available for federal student loans. To learn what IBR is, watch the above video with the Green Debt Monster, who is a surprisingly apt visualization of the situation for millions of graduating students.
In short, IBR allows students with federal student loans to repay those loans on a schedule based on family size and income. After 25 years -- 10 if you work in public service -- of payments, all your debt is forgiven.
At first glance, it looks like the perfect step in the right direction. In many ways, it is: The plan rewards graduates who take public-service jobs, accommodates those who earn less or have large families, and eventually forgives all debt. IBR is promising, but it's not perfect.
IBR is only available to students with federal loans, not private loans or loans taken on by parents. Yet private loans represented 24 percent of education loans in 2008, and they have jumped from 5 percent to 14 percent of undergraduate loans in the past five years -- a trend that can be expected to continue in tandem with the recession. Students with private loans are more likely to encounter predatory practices and have fewer options for repayment if they fall behind. Private loans need the same kind of protection IBR provides.
The millions of students with federal loans whom IBR does cover will face challenges, too. Like the new FAFSA unveiled last week, the success of IBR will depend on how well students are informed about their options. IBR makes the loan process even more complicated, creating new paperwork requirements, and requires borrowers to work with their individual lenders to get IBR -- which can be problematic. The Consumer Law Center writes that lenders, collection agencies, and sometimes even the Department of Education’s loan staff “are consistently wrong in interpreting student loan law and regulations.” If students pursuing IBR or other loan adjustments are directed to people with bad or misleading information, they’ll make bad choices -- and end up in more debt.
And under current law, the forgiven debt from IBR would be taxed as income unless Congress passes a law to exempt it. All of this means that students need universally accurate and accessible information about their options. Despite positive nonprofit efforts, an aggressive federal program to help students navigate the process seems necessary.
These challenges don't mean IBR isn't a good program -- it is, and it's going to help thousands of students manage their debt. But it's not enough, and its existence shouldn't let the student debt issue slide for another few years. Students need better information, protection from predatory private loans, and options like IBR across all loans -- not to mention better interest rates, lower tuition, and more access to non-loan aid. As you can see in the video, IBR may make the Green Debt Monster smaller, but it's still there.
--Christopher Sopher
Christopher Sopher is a Prospect summer 2009 intern.
