The Biden administration is pursuing two higher education policies that aim to make higher education more affordable and less risky for students. The administration’s new income-driven repayment (IDR) plan would help students repay their loans, and its gainful employment (GE) rule would cut off access to federal aid for educational programs where graduate earnings are consistently low. Though the IDR and GE rules are distinct policies that can exist independently, understanding how the two align and how much debt will be left unpaid after the GE rule takes effect can help policymakers consider whether additional quality assurance policies may be necessary and whether loan forgiveness benefits in the Biden IDR plan should be targeted differently.
In this brief, we estimate loan repayment rates in the Biden administration’s new IDR plan before and after the GE rule goes into effect. The data show that the GE rule will reduce the amount of debt forgiven through the Biden IDR plan by removing low-earning programs, but those effects are limited by certain features of the GE rule. Specifically, the GE rule uses thresholds to identify low-earning credentials and unaffordable debts that are lower than those that determine whether students must fully repay their loans when using IDR. Further, many programs with earnings too low for borrowers to fully repay their debts under IDR are exempt from the GE rule. We estimate that only about a third of these exempt programs generate earnings high enough that borrowers will fully repay their loans if they use the Biden IDR plan.
Shifting the risk of unaffordable debt from students and colleges to the government can pose challenges for the loan program. Though the GE rule would substantially increase the share of programs where borrowers are likely to fully repay among the programs the rule covers, many programs still pass or are exempt from the GE rule that consistently leave students with earnings too low to repay their debts. Policymakers may want to subsidize some of these programs, particularly those that are socially valuable, but some of these programs may lead to low earnings because they are of poor quality or are not well aligned with labor market needs.
If policymakers want to guard against subsidizing these programs equally, they could consider enacting additional quality assurance rules for federal loans and further examining the programs and credentials that are unaffected by the GE rule but where earnings will not be sufficient to repay debts under the Biden IDR plan.