President Obama made headline news this week by announcing he will use executive power to extend the Pay As You Earn (PAYE) student loan repayment program to millions of Americans with student loan debt. This repayment plan, passed into law on December 21, 2012, differs from the similar Income-Based Repayment (IBR) by lowering the cap of loan payments to 10% instead of 15% and the years of payment to 20 instead of 25. Previously this repayment option was available only to those “new borrowers” that had received direct student loans since October 2011. In a fantastic editorial published this week on NPR.org, journalist Anya Kamanetz uncovered “the one thing Obama didn’t say about student loan repayment,” which is, that “few people have actually signed up for it.” Kamanetz points out that 37 million Americans have student loan debt, yet just 1.6 percent are taking advantage of the Pay As You Earn repayment plan, the same plan that Obama just announced would be extended to millions of Americans “who borrowed before October 2007 and have not borrowed since October 2011.” The NPR article goes on to describe why more indebted Americans are not taking advantage of the Pay As You Earn plan, suggesting it is “either because they are 1. unaware of the program or 2. have had serious trouble signing up for it.”
Having just graduated from medical school in 2013 with over $160,000 in student loan debt, and being among the few 1.6 percent of those currently using the Pay As You Earn loan repayment plan, let me tell you why Obama’s Pay As You Earn plan is like so many of his other landmark initiatives: it is another great idea crippled by poor infrastructure.
Three days before graduation I met with a medical school student loan counselor for what is known as an “exit interview” to review the terms of the thousands of dollars of impending student loan debt and acknowledge by signature your obligation to begin repayment. After reviewing my significant debt burden for fifteen minutes, the last five minutes or so were used to discuss loan repayment. Estimates were given for various repayment plans, and fortunately, this counselor suddenly said, “Hey, you might qualify for the Pay As You Earn Plan.” “The what?” I asked. Never had I so much as heard mention of this repayment option, and the last three minutes of the exit interview were spent with me hurriedly trying to get as much info as I could on how to apply for this loan repayment program that just seconds earlier was unknown to me. The terms and acronyms blurred together like a horrendously complex biochemistry lecture, and what I heard was something like this, “You should consolidate your loans, but not the direct ones, maybe the Perkins, yes the Stafford, not the institutional, all of the indirect ones, and of course the FFEL ones, and then go to this site here, apply for the income based repayment (IBR), but not because you want that plan but because the Pay As You Earn plan is like the IBR, but not quite, it’s better, but apply for IBR and then later you can get approved for PAYE, oh and does your wife have student loans, oh and be sure to submit a form to your residency so you can qualify for public loan forgiveness after 120 on-time payments….and that’s it, time’s up and I need to meet with the next student, best of luck!”
Confused and overwhelmed, I trudged home, sat down at my computer with a tall diet coke, and began what would become a 5 month-process of enrolling in the Pay As You Earn program. Despite the program’s inception some six months earlier, I could find little to no information on the program available online. What I could find was mostly blogs discussing the plan’s basics, but lacking reputable information and certainly no website I felt I could trust to begin the application process. I silently reviewed the words from my exit interview…first step…loan consolidation. I went to the website my loan counselor told me to access to consolidate the loans. She had warned me to only use this website as it was the government’s site and other private companies and banks would try and entice me to consolidate my loans through the private sector, but these loans would not be eligible for the Pay As You Earn program. Unfortunately, the government-run site has the appearance of a 1980’s arcade with a horrendous pink background, tacky design, and confusing instructions. If the website url was not a seemingly reputable loanconsolidation.ed.gov, I would have left the site immediately, cleared my cookies, and run my anti-virus software just to be sure the site developers weren’t scouring my innards and those of my laptop for passwords and financial information. Once I felt enough time had passed without seductive and scantily clad pop-up windows appearing spontaneously, I decided I would look around on the site for information on consolidating my loans. I began the application and once again met the alphabet soup of student loans – FFEL, Stafford, and Perkins, Institutional and Federal, Direct and Indirect, Subsidized and Unsubsidized. The terminology was confusing, overwhelming, and downright ridiculous. Only because I am an obsessive-compulsive, fine-print reading, slightly-paranoid, closet-legalese-fanatic was I able to navigate the consolidation process.
Then came the questions about my intended repayment plan. Did I want to use the standard repayment plan, the Income Contingent Plan, the Income-Based Repayment plan, this new Pay As You Earn plan, or the the long-term I’ll-owe-you-my-firstborn-and-more-in-interest plan? I knew this one! I wanted the Pay As You Earn plan! Nope, sorry, I couldn’t apply for this plan because the website and infrastructure wasn’t yet prepared to handle applications for the Pay As You Earn plan so I would first need to apply for the Income-Based Repayment plan (because the website wasn’t setup to process the Pay As You Earn applications just yet) and then later could apply for the Pay As You Earn plan.
Over the ensuing five months I received at least a dozen letters from student loan headquarters with information that was repetitive, confusing, and inconsistent. I quickly gave up on the automated system and began calling headquarters myself. Fortunately, the customer service personnel were extremely helpful and patient. After much difficulty and waiting, my loans were consolidated and the Pay As You Earn application submitted (after first applying for the Income Based Repayment Plan). Six weeks later the application was approved and I received the snail-mail notice that I had been approved for the much-coveted and hard-earned Pay As You Earn plan.
Anya Kamanetz of NPR.org hit the nail on the head…Why don’t more people sign up for the Pay As You Earn loan repayment plan? Because, quite frankly, Obama’s Pay As You Earn plan continues a theme becoming all-too-familiar with his presidency, it’s another great idea crippled by poor infrastructure.