Pay-as-you-earn loans combat student debt

Undergraduate and graduate students — regardless of their financial situation and when they took out loans — can apply for pay-as-you-earn federal direct loans this year under a recent revision by the U.S. Department of Education.

The revised pay-as-you-earn program, called REPAYE, determines monthly loan payments by a debt-to-income ratio, which used to restrict eligibility under the original “pay as you earn” program known as PAYE. The new program meets President Barack Obama’s mandate that this loan option would be extended to 5 million more borrowers by December of this year.

Kristin Anthony, assistant director of federal direct loan programs at UNC, said the revision is beneficial because it increases the number of people eligible for pay-as-you-earn programs.

“They want to extend (PAYE) to all borrowers, and when they say that, it’s regardless of an economic hardship,” Anthony said. “And that’s different because all of the income-based repayment options that are out there right now, you have to be eligible to take them.”

She said the average debt of a UNC graduating senior in the 2013-14 year was $17,044 — almost half the national average. Preliminary data for the 2015-16 year estimates that number to be around $17,695.

If a student were to get a reasonably paying job, Anthony said, that student would have low debt, or “indebtedness” as she called it, and would be ineligible for this type of loan. The widening of the PAYE program changes that.

But she said REPAYE will adjust a borrower’s loan payment if the borrower is married, which might make the program unattractive. In the current PAYE program, a married borrower can use his or her individual income for the repayment.

Joshua Cohen, a student loan lawyer, said this penalizes married couples in a way — making someone who perhaps did not borrow money help pay for their spouse’s debt.

“You can’t separate your income, so if you get married, you get married with a loan and your spouse is sort of contributing to it whether they want to or not,” he said.

But Rachelle Feldman, assistant vice chancellor and director of financial aid and scholarships at The University of California-Berkeley, said this is not a big penalization considering most married couples do not file their taxes separately unless they are physically separated. She said this policy is more of a correction.

“So, the new plan doesn’t preclude married individuals from filing their taxes separately,” she said. “But what it does, unlike the old one, is say, ‘If you’re counting both people as living in the household, then you need to count both of their incomes.’”

Feldman was the alternate representative for four-year public universities in the negotiated rule-making process by the U.S. Department of Education for the REPAYE loan program.

While the REPAYE program widens the pool of loan applicants, Anthony said she does not foresee the revised plan increasing the amount of students who decide to attend UNC — federal direct loans are capped, and undergraduates have low borrowing limits.

Instead, Cohen said, the plan is more beneficial for graduate students who come out of their programs with a lot more debt, since graduate students are allowed to borrow more.

According to the U.S. Department of Education, a financially dependent undergraduate has an aggregate borrowing limit total of $31,000, while an independent student has a limit of $57,500. But graduate students can borrow up to $138,500.

And Anthony said specialty programs like dental and medical can add up to $224,000.

Jenna Robinson, president of the John William Pope Center for Higher Education Policy, said while this program will help students facing the hardship of paying off their student loans, it would be better if the aid program was not as complicated, citing the growing number of loan programs for recent graduates.

“I would be more in favor of simplification instead of more nuances, and more changes,” Robinson said.

Feldman also said the array of plans could be confusing for students, but eliminating existing plans was beyond the negotiators’ and Department of Education’s control.

“We’re hoping at some point in the future we can narrow it down to maybe just this and the income-based plan and then a standard plan. But that takes congressional action,” Feldman said. “There was no way for this group of the Department of Ed. to eliminate all of the other plans, because they’re in the law.”

Anthony said she is eager to see how federal direct loans become a bigger topic of discussion in the coming election cycle.

“This is going to become a hot-button topic, especially for the election year, but also going forward after that as to how we’re going to start managing such a high debt among our students,” she said.

state@dailytarheel.com