Any student loan borrower who has tried to decipher which repayment plan works best knows that the process can be daunting.

The federal government offers multiple repayment plans for student loans, including several that tie monthly payments to a borrower’s income. Eligibility varies, depending on the type of loan and when it was taken out, and some options have similar names.

“It can be extremely confusing for borrowers to navigate the system,” said Adam Minsky, a Boston lawyer who specializes in student loan issues.

Seventy percent of student loan borrowers who are in default could have qualified for lower payments, according to a recent estimate from the government. “This tells us that millions of borrowers may be failing to receive critical information about repayment options,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a statement.

To help remedy the situation, the bureau, which has been scrutinizing student loan servicers, is proposing a new repayment notice to be delivered with electronic or paper loan statements, or e-mailed to borrowers. Rather than offering general information, the insert would outline plans suitable for that specific borrower, along with payment estimates.

A sample, available on the bureau’s website, advises borrowers in good standing, “You have the right to choose a different repayment plan.” It then compares three options for a hypothetical borrower: a standard plan, under which monthly payments are fixed for 10 years at $272; a 10-year graduated plan, under which payments start out low, at $152, but increase over time; and an option offering low payments of $45 a month, based on the borrower’s income and family size, for 20 years; any balance left after that time is forgiven.

Another proposed version, for borrowers who have missed a loan payment, warns that the account is past due and emphasizes the pay-as-you-earn option as a way to make payments more affordable.

One issue with carrying out the bureau’s payback initiative is determining how to prepare the tailored repayment estimates. Loan servicers would need access to data about a borrower’s family size and current income, possibly from other government agencies or from outside sources, to prepare accurate estimates of monthly payments, the bureau’s formal proposal notes.

Also, while streamlining information about available options may make the process less daunting, there’s a risk that oversimplification may leave out important details about the effects of choosing a particular repayment option, said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. The loan programs are complex and all have pros and cons.

It’s also important that once borrowers are made aware of the options, they are able to enroll relatively quickly, if they choose. Yu said many borrowers are reporting delays and backlogs getting enrolled in the “revised” version of the pay-as-you-earn program.

While the efforts are welcome, Minsky said, “It would be better if the system was more simplified to begin with.”

Still, Lauren Asher, president of the Institute for College Access and Success, said the proposed disclosures are part of a much-needed evolution in the student loan market: “It’s a very positive step.”


Ann Carrns writes for the New York Times.