The Obama Administration has made expanding access to income-driven repayment (IDR) plans for federal student loans a key part of its higher education policy agenda. The U.S. Department of Education now offers four different IDR plans, all of which allow former students to tie their payments to their income instead of the traditional system of fixed monthly payments. The newest plan, Revised Pay as You Earn (REPAYE), allows millions of students with federal loans to pay 10% of their income above 150% of the federal poverty line—which can represent a significant decline in monthly payments for students with modest incomes relative to their debt burdens.
As IDR plans have become more generous, more students have signed up for these plans. In the third quarter of Fiscal Year 2013, only $72.3 billion in Direct Loans was tied to income-based plans while $247.3 billion was tied to a traditional payment plan. By the first quarter of Fiscal Year 2016, the amount of loans in IDR tripled to $232.5 billion, while the amount in traditional payment plans increased to $353.3 billion—meaning that a majority of additional Direct Loan debt was being repaid via income-driven plans. Data released by the White House show that about one-fifth of students are enrolled in IDR as of early 2016, double the rate of just two years ago.
Income-driven repayment plans likely benefit two different types of students. The first group of students includes those for whom college simply didn’t work out in terms of increasing their earnings potential. IDR is an important safety net for these students, as it helps to insure against the risk of high student loan payments relative to one’s income. Given that students with less than $5,000 in debt are nearly twice as likely to default on their loans than those with more than $100,000 in debt, the availability of IDR should help these students the most.
But a second group of students appears to be the more common users of income-driven plans—graduate students in relatively low-wage fields, particularly those who qualify for the Public Service Loan Forgiveness (PSLF) program that limits payments to a 10-year period instead of 20-25 years for those working for a qualifying nonprofit or public-sector organization. Jason Delisle of New America (who is moving to the American Enterprise Institute soon) has repeatedly raised concerns about the fiscal impacts of IDR for graduate students, noting that the typical borrower in PSLF has between $60,000 and $70,000 in debt and graduate programs have incentives to further raise tuition as the typical student won’t pay back the additional dollars borrowed. Georgetown Law School actually did this by creating a Loan Repayment Assistance Program that covered the loan payments of students who worked in public service and made less than $75,000 per year.
Given the rising cost of IDR programs, it would be useful to know which colleges encourage their students to enroll in income-driven plans or provide assistance to help navigate an often-complex process to annually certify their income. And it would be even more helpful to get this information broken down for undergraduate and graduate students, as the types of students enrolled in IDR likely differ across these two groups. Yet, as with many other important issues (such as graduation rates for Pell Grant recipients or the default rates on PLUS loans), this information is not yet available to the taxpaying public. The White House did release the following chart last week of the number of borrowers in IDR by state, but this chart (released as a picture instead of a spreadsheet!) doesn’t get at the behaviors of individual colleges while also excluding Washington, DC:
The Department of Education’s Office of Federal Student Aid has the ability to release data on which colleges’ students use income-based repayment plans and whether those students are undergraduates with low earnings who are hard on their luck or grad students with lots of debt but incomes at or above the national average. Releasing these data would help inform conversations about the value of IDR plans and what colleges and loan servicers can do to help enroll the neediest students in these programs.
[Cross-posted at Kelchen on Education]
