Office of Planning and Budgeting

Proposed Income-Based Loan Repayment Plan Helps Wealthy, Not Low-Income Borrowers

The New America Foundation recently released a report on impending changes to the federal Income-Based Student Loan Repayment Program (IBR). The report claims that these changes will benefit high-income, high-debt borrowers, not low-income students with moderate student loan debt (note that the current average undergraduate debt load is $26,000).

IBR is a system in which borrowers peg monthly payments to adjusted gross income (AGI), protecting borrowers from paying high monthly payments if AGI is low. In the past, monthly payments under IBR were capped at less than 15 percent of AGI, minus a cost-of-living adjustment equal to 150 percent of the federal poverty line. Any balance that remained after 25 years of on-time payments was forgiven.

The new system, intended to help low- and middle-income students in the face of skyrocketing tuition, was introduced by Congress in 2011. This new IBR program would peg payments to no more than 10 percent of AGI, less 150 percent of the federal poverty line, with any balance forgiven after 20 years. While this measure was intended to target the neediest borrowers, the New America Foundation found that it makes very little difference for most low-and middle income students. Most students with moderate student debt and a consistently low income will pay $5 to $20 less per month under “new IBR”. However, students with high incomes and high student loan debt—i.e., graduate and professional students—will pay much less, and will be more likely to have their loans forgiven in the long run.

The New American Foundation claims that these changes will be costly and of little benefit to low-income students. It proposes several changes to “new IBR,” including:

  • Make new IBR available only to borrowers who make less than 300 percent of the federal poverty line;
  • Provide loan forgiveness after 20 years only if the student’s initial debt amount was less than $40,000, higher amounts would be forgiven after 25 years; and,
  • Require married couples who repay their loans through IBR to file jointly, and use their combined household income for the AGI calculation. Currently, a married couple may file separately, allowing a spouse with student loans and a small income to qualify for loan forgiveness and low monthly payments despite living in a high-income household.

To learn more, check out a discussion of the plan in the Chronicle of Higher Education.

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