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It’s time to simplify the student loan repayment process

George Covino
A new report from the Association of Community College Trustees, Lost in the Trillion, calls for the simplification of the federal student loan repayment process, improvement of repayment plan options and new policies for borrowers with low balances. Building on the 2015 A Closer Look at the Trillion, which highlighted the borrowing and repayment trends of community college students in Iowa, the new report analyzes data from the community and technical college systems in Kentucky and Louisiana.

The authors found that defaults in Iowa, Kentucky and Louisiana are concentrated among low-balance borrowers. More than twice as many borrowers in active repayment used income-driven plans compared with the 2015 data from Iowa. In fact, about half of borrowers with balances over $20,000 enrolled in IDR plans, compared to a fifth of borrowers with less than $5,000 in debt. They further note that between 85 and 90 percent of defaulters used a standard repayment plan. In each of the three states, the median debt for borrowers in the cohort (FY2011 for Iowa and FY2013 for Kentucky and Louisiana) was higher than that of those who defaulted. Defaulters carry smaller debt loads than non-defaulters.

Of course, with a greater emphasis on IDR plans since the Iowa study was completed, it’s no surprise that more students are enrolled in these repayment plans in Kentucky and Louisiana. There has been more outreach by the U.S. Department of Education, institutions and other service organizations. There are also more students eligible for these plans with the higher concentration of direct loan borrowers and the new PAYE and REPAY options. Further findings examined the correlation between defaulters and median income. Across all three states, defaulters earned significantly less than non-defaulters.

The report concludes with several recommendations for federal policy. As mentioned above, the authors recommend simplifying the repayment process. A recent article from MarketWatch tells the story of several student loan experts who had difficulty in navigating the complex system to ensure that their loans were current. Certainly, if the experts have problems, one can understand how difficult it is for community college students. Solutions such as a single payment portal for all student loan borrowers and automatic reconsideration for IDR eligibility based on information from the IRS would help simplify the process. Repayment also can be made simpler by consolidating and simplifying the repayment plans and reducing the number of options from the nine currently available. The authors also recommend that policies specifically address the needs of low-income, low-balance borrowers by doing such things as limiting the amount of borrowing at the start of academic programs, allowing students to access additional Pell Grant funds when they first enroll, making changes to the disbursement of financial aid funds such as “aid like a paycheck,” and providing loan forgiveness after 3 - 5 years of payment for low-balance borrowers.

Clearly the current system is too complex for students and institutions. This report, funded in part by Strada Education Network, helps shed some light on just what the issues are for community college students and what might be done to help them in the future. If you have any thoughts on what the report means or what can be done to help community college student loan borrowers, you can contact me via email, Twitter or LinkedIn.

On a personal note, I’d like to wish Colleen Campbell, one of the authors of the report, good luck in her new role. She recently joined the Center for American Progress as associate director, postsecondary education!

George CovinoGeorge Covino is Student Connections’ vice president of student success.