Glitch May Block Student Borrowers From Enrolling in Income-Based Repayment

October 08, 2009

A technical glitch may be discouraging some student-loan borrowers from signing up for an income-based repayment plan, consumer advocates and financial-aid administrators warn.

Income-based repayment, which allows borrowers to repay their loans as a percentage of their income as graduates, went into effect on July 1. But the Education Department's account-repayment Web site does not list the plan as an option on its drop-down menu, and will not until March.

A department spokesman said the agency had planned to update the menu in September, but pushed back the date because of "resource limitations" at the department and its servicing contractor, ACS. In recent months, both entities have been consumed with expanding the department's loan-processing capacity to accommodate more loans and to prepare for a potential switch of all federal loans to the direct-lending program, the spokesman said.

During the 2008-9 academic year, the federal government bought some $50-billion in loans from lenders as part of a program of emergency loan purchases designed to free up capital for new loans. Meanwhile, dozens of colleges switched to direct lending, increasing the size of the program by 50 percent. The direct-loan program could become even larger next year, if Congress passes President Obama's plan to eliminate the guaranteed-loan program.

While borrowers can enroll in income-based repayment by downloading a form from the Education Department's Web site and mailing it in, consumer advocates say the process is too complicated and is dampening participation in the new repayment program.

As of early September, 14,000 borrowers had applied for income-based repayment and 4,500 had qualified, according to the department.