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An easy fix to a flawed student loan rule

One of the major benefits of using federal student loans to help pay for college is the safety net that awaits graduates who might otherwise struggle to pay off their debts.

The federal government offers various repayment plans that essentially allow former students, who may be underemployed or without a job, to repay their loans based on what they're currently making rather than what they owe. These repayment programs have been a godsend for financially strapped individuals who have pursued bachelor's, graduate and professional degrees.

Until now, the knock against these federal repayment options, which began in 2009, has been that not enough borrowers know this debt relief is possible. But as it turns out, an alarming number of borrowers are essentially getting kicked out of the program.

How did student loans become fastest-growing type of debt?

Nearly 700,000 borrowers who were enrolled from 2013 to 2014, or 57 percent of the total, are no longer participating in the repayment programs. These adrift borrowers were subsequently subject to higher monthly payments and in some cases dramatically larger monthly bills.

Among those who were ejected from the program, about a third reregistered within six months and about a third enrolled in a federal forbearance or deferment program that temporarily stopped their payments. Fifteen percent of the borrowers defaulted on their loans.

News of this surprising attrition came out during a U.S. Department of Education rule-making session that brought higher-ed stakeholders together to explore future changes to these programs.

The borrowers became ineligible because they did not provide the necessary information to continue their participation. After borrowers enroll in the program, they must submit income documentation annually and certify their family size so the federal government can determine if they remain eligible.

How to get out of student debt

So, why are debtors missing the deadlines to submit routine paperwork when the stakes are so high?

Apparently, many of them don't even know about the requirement. Some loan servicers mail letters with urgent warnings on the envelopes, but others don't communicate the importance of the correspondence by letter or email.

Another reason for the drop-out rate is that loan servicers lose touch with borrowers. In many cases, the servicers are using contact information from the time the loan was taken out and is now out of date.

One solution to this problem is to review borrowers' eligibility and renew individuals automatically by using IRS taxpayer data. In President Obama's recently released Student Loan Bill of Rights, the administration directed the Treasury and Education departments to investigate the feasibility of such a system.

Lauren Asher, the president of the Institute for College Access & Success, a consumer group that had representatives at the rule-making meeting, strongly endorses finding a way to keep eligible borrowers in these repayment programs.

"These numbers," Asher said, "only drive home how important it is to make it easier for borrowers to transfer income information from the IRS to the Department of Education without having to fill out forms every year."

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