This summer, outstanding student loan debt rose to $1.2 trillion and seven-million borrowers have defaulted on their federal or private student loans. But many struggling with repaying federal student loans aren't taking advantage of new government programs to make payments more manageable based on their income.
Three young professionals who work at the advertising agency Lawrence and Schiller each have a pretty hefty student loan balance to pay off for their education.
"It was kind of a shock when I got my first email after college and it was saying what I owed," Brittany Pelzl said.
Pelzl will start paying on her student loans in November. But she admits she doesn't know much about her options for repayment plans.
Angela Kennecke: Did anyone inform you about the income based repayment?
Pelzl: No, no that was the first time I ever heard about it.
According to the Consumer Financial Protection Bureau, Pelzl is not alone. Just three out of ten borrowers in repayment plans are getting the kind of help that ties a borrower's payment to their monthly income. The balance on income-based repayment plans are forgiven after ten, 20, or 25 years, depending on the program.
"It would be nice if each school could have a seminar for graduating students, just so they know what they're getting into and what their options are once they graduate from school," Pelzl said.
Pelzl's coworkers, Tracy Hamann and Lindsey Claussen, who have been out of school for a couple of years, had heard about income based repayment plans, but not from their loan servicers.
"I had heard about it from a friend who had looked into it as well, but for my situation at the time it didn't fit what I was looking for," Hamann said.
"I just looked into it because I saw it was an option; and with my payments already being manageable the way it was and with the qualifications I didn't quite meet them, I looked into it, but it wasn't the right fit for me," Claussen said.
But for the millions struggling to make their payments, the government streamlined the income based repayment enrollment process by making it easier to apply online and restructured how student loan servicers are paid, to make putting borrowers on these program more attractive.
Visit Pay As You Earn to learn more.