President Obama made headlines Tuesday when he announced that he would use his executive power to expand the Pay As You Earn program, one that limits borrowers’ monthly debt payments to just 10 percent of their discretionary income.
Under the program, the balance of student loan is forgiven after 20 years — 10 years if the borrower holds a government or a nonprofit position.
While Pay As You Earn has existed since 2012, few have signed up for it.
Thirty-seven million Americans are currently shouldering some kind of student loan debt. It’s difficult to calculate exactly how many of them would be eligible for the Pay As You Earn expansion, but a White House fact sheet says “most” of today’s borrowers would qualify. If you look at public service loan forgiveness alone, about a quarter of the workforce qualifies.
As we said, Pay As You Earn isn’t exactly new, and last year, enrollment did grow almost 40 percent. But the total number of borrowers now signed up is still just 1.6 million. Remember — 37 million Americans are carrying some kind of student debt. That means quite likely the vast majority of those who could get help paying off their loans just aren’t asking for it.
It seems people don’t enroll in Pay As You Earn for two reasons. I hear from struggling borrowers all the time who are either a) unaware of the program or b) have had serious trouble signing up for it. When it comes to awareness, the government simply hasn’t promoted the program the way it did, say, the rollout of the Affordable Care Act.
Even with Pay As You Earn, lenders still have a lot of control over borrowers. Servicers still get paid handsomely — whether borrorwers fall behind on their payments, or go into default.
Sallie Mae has 40 percent of all federal student loans in its posession, but represents just 18 percent of borrowers enrolled in Pay As You Earn.
Thoughts on the initiative?
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