Education

Student loan repayment program can help reduce college debt, experts say

FILE: Students with federal college loan debt can apply to an income-based repayment program that could significantly reduce their obligations, an expert says.
FILE: Students with federal college loan debt can apply to an income-based repayment program that could significantly reduce their obligations, an expert says.
Jeff Chiu/AP

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If you are saddled with high student loans, a federal repayment program may be your best bet to reduce the kind of debt that is sapping the economic health of thousands of people, an expert says.

The country's college debt problem is so large that some see it as shackling a generation of students and creating an indentured class. That was among the observations made by a panel of experts at a KPCC/Milken Institute discussion Wednesday night at Occidental College.

Nationwide, seven out of 10 people who attended public and nonprofit colleges graduated with loan debt in 2013, averaging about $28,000. But in extreme cases, the burden can be in the hundreds of thousands of dollars. 

Cheyne Bush, a musician who also hopes to make films, has a bachelor's and master of fine arts degree from California Institute of the Arts. He stunned the panel audience Wednesday when he said his student debt totals $400,000. But it was his mother, Inez Bush, who moved some to tears when she described in a shaky voice the burden of her son's debt and how she thinks about it day and night. 

The Economist reported in August that the nation's student loan obligation totaled $1.2 trillion, based on federal government figures. That amount exceeds how much Americans owe on credit cards.

While the situation is dismal, it could be even worse if not for a key policy change made several years ago.

“Since 2009, any borrower with federal student loans has been eligible to get into a plan that allows you to repay your debt based on what your income is and not just the amount of debt that you owe,” said Debbie Cochrane, research director with The Institute for College Access and Success.

Graduates with outstanding loans can qualify for one of several repayment plans under the program if their debt is larger than their annual income or represents a significant portion of their yearly income.

Debts can be forgiven after 20 years for those in the private sector, or 10 years for those in public service, such as teachers and nurses. Payments are capped at 10 percent of a debtor's disposable income.

On Wednesday, the U.S. Department of Education released yearly data showing that about 14 percent of students defaulted on their loans, down about 2 percent. 

Cochrane believes the repayment plans contributed to the smaller number of defaults, as did the improving economy and colleges that focus on reducing defaults. But she adds it’s still troubling that 611,000 people defaulted on their loans when they started repayment in 2012.

Watch the full KPCC/Milken Institute panel discussion for more information on avoiding large college indebtedness.