Yahoo Finance 'Payback Playbook' Among New Web Tools for Student Loan Borrowers
The Obama administration is rolling out two new Web tools to help borrowers manage their federal student loans and enroll in a payment plan.
The move is a part of the Department of Education's initiative to enroll an additional 2 million student loan borrowers into a repayment plan such Pay As You Earn and other income-based repayment plans.
Of the more than 40 million Americans with student debt, the department reports that 1 in 4 borrowers are in default or delinquent.
Around 70 percent of student borrowers who are in default would qualify for one of the available income-based repayment plans, according to the U.S. Government Accountability Office.
Borrowers in default for their student loans face steep charges. For federal Stafford, PLUS and consolidation loans, collection costs can run as high as 24 percent unless the borrower consolidates out of default and rehabilitates the loans.
"The goal is to get all the folks who would benefit from the income-based repayment into the plan that would make sense for them," said Education Secretary John B. King Jr., on a call with reporters on April 27 to announce the new tools. "Clearly for some folks the standardized plan and finishing paying off their loans in 10 years may be superior because they'll end up paying less interest."
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Around 20 percent of student borrowers are enrolled in an income-based repayment plan, according to the department's most recent studies.
Student loan experts say that when federal loans become due for payment, the debt is automatically entered into a standard plan, which is the amount due over a 10-year period. Plans that are based on income are a tool to help some borrowers meet monthly payments if they're unable to enroll in a more traditional plan.
Here is an overview on the two new Web tools the government is launching for student loan repayment.
Studentloans.gov/repay: The new website, launched last week by the Department of Education, is intended to be user-friendly with five "yes" or "no" quiz-like questions.
The website is one of several steps the department is taking toward creating a "one-stop" website for student loan borrowers, King says.
"The Department of Education is really trying to make studentloans.gov the primary portal for paying your student loans," says Rachel Fishman, a senior policy analyst at New America, a Washington, D.C.-based research institute.
Student loan borrowers with federal loans previously had to go to a separate website to consolidate their loans. But the new site allows borrowers to consolidate loans directly.
[Check out threesurprising student loan repayment facts.]
"It cuts down on many of those steps," says Fishman.
Fishman says it'll be important for the department to reach the most vulnerable borrowers, such as those in default. "The people who are accessing the most information about student loans are going to be a savvier group of borrowers."
One silver lining: Enrolling in an income-based repayment plan is better than defaulting, experts say.
Enrollment in an income-based repayment plan not only staves off default and delinquency, but has other protections. Income-based repayment , even if the monthly payment is as low as zero dollars, can help the borrower toward loan forgiveness, for example.
"It's better to take some form of action and develop some form of strategy other than sticking your head in the sand," says Andrew Josuweit, founder and CEO of Student Loan Hero, a website that provides borrowers information on student loan repayment.
Payback Playbook: The Consumer Financial Protection Bureau -- a government agency that oversees consumer borrowing -- is introducing a new Web guide to help borrowers pick the best repayment plan by generating a custom playbook. The website is in a prototype phase until June 12 and open to public feedback.
Payback Playbook will take personal information from the borrower and create customized options, showing the borrower their expected monthly payments and accrued interest for the life of the loan for each plan.
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"Our Payback Playbook seeks to connect the growing disconnect between borrowers in search for affordable loan payments and our nation's loan default problem, " says CFPB Director Richard Cordray.
Education analysts say the new tool is a good idea since it provides personalized information, but it won't solve all borrowers' problems.
"They do provide short-term cash flow solutions so borrowers don't default, but they're not helping people tackle their debt and save money on interest," says Josuweit, who says other repayment tools are needed.
Student Loan Hero is launching its own new repayment tool in early May that provides users several strategies for repaying their loans, including refinance and loan consolidation. The new tool is self-service and uses personalized information from borrowers to generate tailored payment options for both private and federal loans.
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