Overhauling Income-Driven Repayment

Inside Higher Ed

Katherine Knott

December 14, 2022

While President Biden’s one-time student loan forgiveness plan remains tied up in the U.S. Supreme Court, the Education Department is working on a more far-reaching and costly plan to overhaul how people pay back their loans.

The overhaul of the department’s income-driven repayment program, which bases monthly payments on an individual’s income and family size, would cut payments in half for undergraduates, with a cap of 5 percent on a borrower’s discretionary income. Those who take out $12,000 or less in loans would qualify for relief in 10 years, among other changes. Over all, experts say this plan has the potential to remake how higher education is financed in America—though that depends on whether borrowers take advantage of it.

“It won’t be overnight,” said Jason D. Delisle, a senior policy fellow at the Urban Institute’s Center on Education Data and Policy. “I think it will take a while for people to realize this change.”

But once borrowers get wise, Delisle thinks more college students will take out student loans because the terms are more advantageous.

The broad strokes of the administration’s plan for income-driven repayment were released in August at the same time that Biden announced he would forgive up to $20,000 in federal student loans for eligible Americans. The department is expected to release a draft of the regulations for the income-contingent program’s changes within the next month, kicking off what will likely be the next front of partisan war over student loan forgiveness.

Department officials have said they are “excited” about the income-driven repayment changes, which Biden touted as a “game changer” in August. Likewise, experts and debt-relief advocates say the changes are significant, in that they’ll apply to past, present and future borrowers and are likely more resilient to court challenges.

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