Income-Driven Repayment Overhaul ‘a Step Forward’

Advocates want graduate students and borrowers with Parent PLUS loans included in the Education Department’s planned overhaul of income-driven repayment, while critics want the planned changes scrapped altogether, citing the cost and concerns of executive overreach.

The Education Department received nearly 13,000 comments from borrowers, lawmakers, researchers and others about the draft regulations for income-driven repayment during the 30-day comment period that ended Friday. The proposed changes could transform the financing of higher education by offering more generous terms, including smaller payments and forgiveness after 10 years for borrowers with less than $12,000 in loans.

Department officials have said that the proposed changes would permanently fix a “broken student loan system.” Under the plan, borrowers also wouldn’t see their balances grow as long as they make monthly payments, and those who are at least 75 days behind on their payments will be automatically enrolled in income-driven repayment. Those in default would also have access to the program.

Under income-driven repayment, borrowers’ monthly payments are calculated based on their income and family size. The balances are forgiven after 20 to 25 years, depending on the specific repayment plan.

The department will review the comments before releasing the final regulations. The Biden administration wants to start the new program this year.

Several comments said the changes would incentivize colleges and universities to charge more in tuition and leave taxpayers on the hook for student loans. Other comments praised the proposed changes as helping to fix the program and pushed for the department to shorten the timeline for loan forgiveness, increase the discretionary income threshold and extend the more generous terms to graduate student borrowers and those who hold Parent PLUS loans.

“My sister and I combined have 300k in student loans in our mother’s name,” one commenter wrote. “We both have decent jobs but the crippling debt hinders our entire family. Our parents cannot afford the 20 [percent] discretionary income that is formulated under the current plan.”

Parent PLUS loans are currently excluded from income-driven repayment plans.

The Student Borrower Protection Center along with nearly 60 organizations representing student loan borrowers, teachers, veterans and other groups also advocated for the inclusion of Parent PLUS loans and graduate students, among other changes, in a joint comment.

“We applaud the department for the significant positive impact these proposed changes to the IDR rules [will have on the] lives of millions of borrowers, as they will see substantial reductions in monthly and lifetime payments,” the comment said. “These actions, although a step in the right direction, are inaccessible to vulnerable populations like Parent PLUS borrowers. We urge the department not to squander this opportunity to create a truly affordable and accessible IDR plan.”

The organizations also called on the department to ensure that federal student loan servicers provide quality customer service to borrowers so that those who are eligible could take advantage of the revamped IDR program.

The American Psychological Association commented in support of the overhaul but said it was concerned with how the department chose to handle graduate student debt. The association pointed to state requirements for a graduate degree in order to work in mental and behavioral health fields and to the country’s ongoing shortage of mental health professionals as reasons why graduate student debt shouldn’t be treated differently.

The association wrote that the distinctions between undergraduate and graduate student borrowers were “arbitrary and rooted in misinformed perceptions” that an individual’s income is tied to degree level.

“Such misconceptions turn IDR into a ‘degree,’ rather than an ‘income’ based program, operating under the misconception that all graduate degree holders will be ‘high-income’ earners,” the comment says. “Data show that this is not necessarily the case, particularly for those in public service, including in mental and behavioral health care fields, where an advanced degree is a requirement at entry level.”

‘Significant Wealth Transfers’

The Education Department said the new version of income-driven repayment would cost $138 billion over the next decade, but outside groups have found it could cost $333 to $361 billion, depending on how many people take advantage of the program.

Matthew Chingos, vice president for education data and policy at the Urban Institute, wrote in a comment that the costlier elements of the proposed changes “include significant wealth transfers that produce few benefits.”

The department’s plan to set the discretionary income threshold at 225 percent of the federal poverty level would cost $74 billion and is the costliest provision of the proposed changes, Chingos wrote. The other costly provision is capping payments at 5 percent of a borrower’s discretionary income. Neither component is targeted specifically to low-income borrowers, he wrote.

“There is little evidence that these changes will have large enough benefits for borrowers to justify their significant costs, and those costs will be much larger than estimated by the department to the extent the proposed changes lead more borrowers to enroll in IDR and more students to take on debt,” he wrote.

Chingos advocated for a graduated assessment rate that would have borrowers with higher incomes paying a larger share of their discretionary income toward the loan. Chingos and other Urban Institute researchers found that under the proposed plan, undergraduate borrowers would fully repay their loans.

The income-driven repayment overhaul is one of several efforts underway at the Education Department to fix debt-relief programs that didn’t work as intended.

Before the administration’s efforts in the last year, only 32 borrowers had their balances canceled through income-driven repayment since the program began in the 1990s, though two million were eligible, the Student Borrower Protection Center and the National Consumer Law Center found in 2021.

“I believe this is a step forward in helping individuals with student loans or who are considering student loans,” one commenter wrote. “Others should not have to suffer with the crippling debt as I have for attempting to make their lives better by obtaining higher education.”