January 25, 2023
Changes proposed by the Biden administration to income-driven repayment plans could vastly lower the share of borrowers who would fully repay their federal student loans, according to a new analysis from the Urban Institute, a left-leaning think tank.
The proposal would lower the share of discretionary income that borrowers enrolled in income-driven repayment plans must put toward their loans each month, from 10% to 5%. Only 22% of bachelor’s degree recipients would be expected to fully pay off their loans under the new plan, down from 59% under the current structure.
The researchers found similar changes for certificate and associate degree recipients. If they all enrolled in the new income-driven repayment plan, only 11% would be expected to fully pay off their loans. That’s compared to 62% under the current plan.
The report’s authors argue that the Biden administration’s proposal will transform the income-driven repayment program from “a safety net that supports borrowers with low incomes into a substantial subsidy for most undergraduate students who take on debt.” In turn, most undergraduate borrowers wouldn’t be expected to fully repay their loans.
The U.S. Department of Education unveiled the plan in January. Along with slashing the share of discretionary income borrowers owe each month, the new rules would also broaden the number of borrowers who meet an income exemption, allowing low-income borrowers not to pay anything.
Under current rules, borrowers with incomes up to 150% of the federal poverty level don’t have to make monthly payments. That equates to around $20,400 for individuals. The new regulations would raise that income threshold to 225% of the poverty level — or around $30,600 for an individual.
The time during which borrowers must make payments would also be shortened, from 20 years to 10 years if their federal loans totaled $12,000 or less. A year would be added for each additional $1,000 they borrowed.
Unpaid interest would be forgiven each month under the plan and balances would not be able to increase.