Brief Lowering Monthly Payments for Borrowers in Income-Driven Repayment Could Have Unintended Consequences
Sandy Baum
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Although lowering monthly payments for student loan borrowers in income-driven repayment (IDR) plans would reduce monthly financial obligations, it would cause the amounts many borrowers owe to increase over time and lead to borrowers being in repayment longer and making higher total payments.  It would also significantly raise the income levels required for borrowers to repay their loans before reaching the end of the 20-year repayment period.  

This essay considers how the typical graduate with student debt would fare under three versions of IDR: the current plan, where borrowers pay 10 percent of discretionary income; a proposed plan where borrowers pay 5 percent of discretionary income; a combined plan, where borrowers pay 5 percent of the first $10,000 in discretionary income but 10 percent on further income

Lowering monthly payments would provide the largest benefits to higher income borrowers with advanced degrees, not the vulnerable borrowers with the lowest incomes. The combined approach, however, could ease the burden on borrowers repaying out of relatively low incomes.

Research Areas Education
Tags Higher education Financial knowledge and capability
Policy Centers Center on Education Data and Policy