Only about 10 percent of borrowers are enrolled in an income-based repayment program. Half of student loan debt not repaid

About half of the outstanding $1 trillion in federal student loan debt in the U.S. isn’t being repaid. And 1 out of 8 borrowers are defaulting on their loans despite unprecedented federal attempts to help.

An analysis released Monday by the CFPB shows borrowers are struggling to repay their loans and are seemingly unaware of options that could them help avoid default or forbearance.


About $180 billion in debt of the outstanding $1 trillion is in default or forbearance. And an additional $315 billion isn’t being repaid because borrowers are still enrolled in school, just left school or have deferred payment on their loans.

“That can have serious consequences for their economic future,” said Rohit Chopra, the bureau’s student loan ombudsman. “The troubling part is that many of those defaults could have been avoided if borrowers knew about their options and were able to easily enroll in them.”

Only about 10 percent of borrowers are enrolled in any kind of income-based repayment program. The others are in either standard 10-year repayment programs or in extended programs, which stretch loan payments — and interest — out over many more years but don’t take borrowers’ financial situations into account.

( Also on POLITICO: House passes student loan rate fix)

New repayment programs base loan payments on borrowers’ discretionary incomes. If borrowers really can’t afford to make payments, a common reason for default and forbearance, they can pay very little or nothing at all.

The Obama administration has made those programs more generous than ever. Borrowers can now pay 10 percent of their discretionary income each month and have their loans forgiven after 20 years if they work in the for-profit sector; after 10 years if they work for nonprofits or federal, state or local governments.

The situation is in some ways worse for borrowers who took out loans under the bank-based student loan program. That ended in 2010, when the Education Department became the sole student lender. About 1 in 5 borrowers from the past program are now in default. And 7 percent are in forbearance: They’re not making payments but interest continues to accrue. Those borrowers are also eligible for income-based repayment plans, although they must sometimes consolidate their loans.

A smaller proportion of borrowers who took out direct loans from the Education Department are repaying, but more of these borrowers are still enrolled in college. Of direct-loan borrowers, 8 percent are in default and 6 percent in forbearance.

But the numbers trouble Chopra and other experts, who say there is no reason for federal borrowers, especially direct loan borrowers, to be in default or forbearance at all.

The low enrollment in programs to help suggests students aren’t aware of income-based repayment or they’ve struggled to sign up. The enrollment process is famously confusing: It can require consolidating loans and dealing with multiple loan servicers.

“We’ve tried to do our part with the Department of Education,” Chopra said. Both agencies have worked to raise awareness about the repayment programs. “One of the best ways that people can learn about these options is often directly from the person they’re paying the bill to.”

Clarification: An earlier version of this report was not clear that some of the $1 trillion in outstanding student loan debt isn't being repaid because borrowers are still enrolled in school, have just left school or have deferred payment on their loans.

CORRECTION: Corrected by: Julie Xie @ 08/06/2013 05:54 PM Clarification: An earlier version of this report was not clear that some of the $1 trillion in outstanding student loan debt isn't being repaid because borrowers are still enrolled in school, have just left school or have deferred payment on their loans.