Are You Missing Out on This Student Loan Perk?

Are You Missing Out on This Student Loan Perk?

It's no secret that American grads are drowning in student loan debt. But recent statistics show that it may simply be because they're not taking advantage of the resources and programs available to them.

We've covered why federal student loans are a better bet than private ones: The government pays the interest on the loans while you're still in school (and for six months after), and the interest rates tend to be lower. Plus, federal loans tend to allow more flexibility when it comes to repayment plans.

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But out of the approximately 37 million Americans with outstanding student loan debt today, only about a third of them participate in the special plans that enable them to better handle their loan payments. And most—two-thirds—of these people are repaying their loans using plans that extend the term of the loan or start with small payments that grow over time, Bloomberg Businessweek reports. Both of these options leave the borrower paying more interest over the life of the loan.

But there's another, underutilized, option--one that may not leave borrowers so far in the hole. It's called income-based repayment.

RELATED: 3 People, 1 Big Student Loan Debt: My Make-Ends-Meet Plan

Why Don't More Students Use IBR Plans?

An income-based repayment plan, or IBR, ties the amount of a borrower's monthly payment to his or her income and forgives the remaining balance after 10, 20 or 25 years. Rohit Chopra, a Consumer Financial Protection Bureau student loan official, even told Bloomberg Businessweek that many grads may be better off using this option.

It sounds like a pretty good deal--so why aren't more students using them?

The problem is twofold: lack of publicity and level of enrollment difficulty.

The loan servicers who collect grads' monthly payments are responsible for making borrowers' options known. But these companies aren't exactly known for being vocal: two-thirds of borrowers didn't hear a peep from their loan servicers even when they were about to default, according to a 2012 National Consumer Law Center survey. Additionally, there is evidence that servicers aren't being compensated enough to encourage them to go the extra mile and help their borrowers.

RELATED: What to Do if You’re Struggling With Student Loan Payments

Even if you do know about the program, enrolling can be a challenge in and of itself. Inside Higher Ed revealed the stumbling blocks on the road to enrolling in IBR, from consolidating your loans to "jumping through bureaucratic hoops."

On the bright side, recent changes by the White House—including incentives for servicers to enroll grads in IBR and an easier, online application process—could help fix these issues and help more people get in control of their debt.

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