As we move through college commencement season, the last question you want to bring up at the graduation brunch is, "Hey, how are you going to pay off all those student loans?"
Yet policy wonks are working to pose that very question to new grads and others in the millennial generation who must tackle hefty monthly bills related to college debt.
Loan servicers could soon be required to send borrowers personalized information regarding different loan repayment plans. Or, borrowers might see these options spelled out when they log into their student loan accounts.
The Consumer Finance Protection Bureau is looking at rolling out what it's calling a "student loan payback playbook."
Like any playbook or study guide, it will allow borrowers to see various game plans for paying off debt.
The consumer watchdog agency is taking comments online about its proposed format through June 12. The agency wants to know what might help borrowers better understand options, such as graduated repayment plans and pay-as-you-earn plans.
The playbook example listed online shows a standard, 10-year fixed repayment plan at $271.54 a month. The borrower in the example has 112 payments remaining, or nine years and four months.
But by opting for another plan, the borrower could see her monthly payment drop to $152 before gradually increasing over time up to $455 a month. Such a plan benefits borrowers who make little money now but expect to be making far more in the future. The repayment time frame would still remain at nine years and four months.
Or if the borrower opted for an income-driven plan, which is based on family size and income, the payments could drop to as low as $45 a month. But the repayment would go through 19 years and four months. Then, the loan balance is forgiven.
One glaring omission, as I see it, is the lack of one big number here to tell the consumer how much money he or she will pay over the life of the loan. Borrowers should absolutely be able to see up front a clear number or total cost for each option. Lower monthly payments drive up the total cost in many cases.
Mark Kantrowitz, publisher and vice president of strategy at Cappex.com, agreed that proper disclosures need to include not just the monthly payment but also the interest rate charged and total payments over the life of the loan.
"Omitting that information is misleading, since it makes a loan with a longer repayment term look less expensive," he said.
Take two $25,000 loans.
One has a monthly payment of about $265 for 10 years. Its rate is 5 percent.
Another has monthly payments of $179 but that's over 20 years. Its rate is 6 percent.
Over the life of the loan, the one with the smaller payment here will cost an extra $11,000 in interest. The 20-year loan ends up costing nearly $43,000.
"The income-driven repayment plans were designed to be a safety net for borrowers who are struggling to make their loan payments," Kantrowitz said.
"They were not supposed to be the default choice (pun intended)," Kantrowitz said.
Yet right now, the goal is to increase awareness of alternative repayment options in order to reduce defaults.
The U.S. Department of Education has said it wants to get an additional 2 million borrowers into an income-driven repayment plan -- where payments reflect how much a borrower can afford to repay at a given time.
About 4.56 million borrowers in the federal Direct Loan program are in income-driven repayment plans now -- or about 22 percent of borrowers and 37 percent of the loan dollars.
Pay after college
When do you need to begin making payments? You don't begin repaying most federal student loans until after you leave college or drop below half-time enrollment. Direct Subsidized Loans, Direct Unsubsidized Loans, Subsidized Federal Stafford Loans, and Unsubsidized Federal Stafford Loans have a six-month grace period before payments are due.
About 43 percent of roughly 22 million people with federal student loans weren't making payments as of Jan. 1. That group is made up of borrowers who are a month behind on payments, those who had gone at least one year without making payments and are in default and others who received permission to temporarily halt payments because of an emergency, such as unemployment.
Justin Draeger, president of the National Association of Student Financial Aid Administrators in Washington, D.C., said there's always a fine line between disclosing enough information to enable a consumer to take some action and so much information that they'd be overwhelmed and unable to make a move.
"The idea here was to spur action," Draeger said.
It may be important to give borrowers different ways to see their options, Draeger said, to keep those under financial stress from defaulting.
Draeger said about 12 percent of student loan borrowers who leave school default within three years overall. Many of those borrowers do not have a college degree and may have a smaller amount of debt but still feel overwhelmed when it comes to paying off those loans.
If you receive this information when you log in to your account, he said, you'd be able to see how much you owe.
Various information is available already online to research income-driven or income-sensitive repayment plans. See www.studentaid.ed.gov.
Incentive to reach out
Colleges and universities have an incentive to reach out to troubled borrowers in order to reduce their Cohort Default Rate -- or the percentage of the school's borrowers who begin repaying certain loans during a federal fiscal year and then default before the end of the next one to two fiscal years.
But Kantrowitz, a student loan expert, notes that almost two-thirds of defaults are from borrowers who dropped out of college.
A better approach, Kantrowitz said, could be to provide more counseling each time students take out more student loans.
Costs going up, not down
College costs, of course, have been climbing for decades and driving up student debt. Between 1992 and 2012, the average amount owed by a typical student loan borrower who graduated with a bachelor's degree more than doubled to a total of nearly $27,000, according to Pew Research Center.
In 2012, the study notes, a record percentage of the nation's new college graduates -- 69 percent -- had taken out student loans to finance their education.
Other efforts are out there, as well.
Jennifer Wang, director of the Washington office of the advocacy group the Institute for College Access and Success, said the new format proposed by the CFPB can be a way to make sure that borrowers have the personalized information to encourage them to consider repayment options.
"There are still people out there who don't know about income-driven repayment," Wang said.
Susan Tompor, the personal finance columnist for the Detroit Free Press, can be reached at stomporfreepress.com.