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Hundreds of Thousands of Borrowers Fall Out of Income-Based Repayment Plans

April 2, 2015

Over half of direct student loan borrowers enrolled in income-based repayment (IBR) plans fell out of the program after failing to file their annual income documentation on time, Education Department officials revealed during a rulemaking session on Wednesday. Nearly 700,000 borrowers who enrolled in the IBR program – 57 percent of the total – missed the deadline to certify their income. The lapse sent them into standard repayment, where their monthly loan bills were higher, sometimes significantly so, The Chronicle of Higher Education reported.

A third of the lapsed direct loan borrowers re-enrolled in IBR plans within six month, another third went into a hardship-related forbearance or deferment, and some 15 percent became delinquent on their debt, according to officials. Borrowers with loans made under the former bank-based lending program missed the deadline approximately 40 percent of the time, according to loan servicers on the rulemaking panel.

Experts assume that so many borrowers are missing the deadline because they are ignoring or overlooking the renewal notices that servicers are required to send 60 to 90 days before the paperwork is due. While some servicers send out letters with brightly colored warnings like "time-sensitive" and "rush," others send generic emails that give little indication of the urgency of the task.

In an effort to reduce the attrition rate in income-based plans, the Education Department is preparing to test new ways of communicating with borrowers, according to the Chronicle. A pilot program, which starts this month, will begin when the department sends borrowers reminders after their servicers' notifications go out. Later, the department will take over the process altogether, to see if government-branded emails and texts are more effective than those sent by servicers. 

The Obama administration has pushed income-driven plans as a way to keep borrowers out of default. Despite previous attempts to promote IBR and ease the application process, enrollment remains below the Education Department's projections. In December, the agency announced plans to draft new rules to expand the income-based student loan repayment program. The comments came at the second of three three-day negotiated rulemaking sessions on the topic. The panel will meet a third and final time at the end of April to hash out the details of the expansion.


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