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Domino: A Blog About Student Debt Fulfilling the Promise of Income-Driven Repayment

Fulfilling the Promise of Income-Driven Repayment

Student Borrower Protection Center | September 10, 2021

Every year, millions of borrowers take on student loan debt in pursuit of the American dream. But for many, these loans eventually become less a ladder toward opportunity than a debilitating burden. Between stagnant worker incomes and the financial consequences of “life happening”—from job loss to health issues—it is frequently not tenable for borrowers to afford key life expenses while making student loan payments. As bills go unpaid and interest accrues for distressed borrowers, student loan debt can become a lifelong weight, including one with time spent in damaging periods of delinquency or default.

To address historic debt loads and ballooning monthly payments, almost three decades ago Congress offered federal student loan borrowers one of the most critically important protections available in any consumer financial market: income-driven repayment (IDR). Under IDR, borrowers are afforded the opportunity to pay back their federal student loans based on their income—not based on how much they owe—and to be released from their debts after a predetermined number of years of successful repayment. 

IDR has gained widespread bipartisan support in no small part because it is premised on three common-sense ideas: making federal student loans affordable, assisting those most likely to struggle, and ensuring that federal student loan debt is not a lifetime commitment. President Biden has made the expansion of IDR a cornerstone of his plan to expand access to higher education, and members of Congress have called for similar changes.

Unfortunately, IDR’s track record of success in its goals of making student loans affordable and time-limited is mixed. For certain purposes and for some people, the protection has proven effective. For example, research shows that IDR is a powerful tool to prevent borrowers who are able to persist in the protection from defaulting and to offer borrowers temporary relief from unexpected financial shocks. 

However, a growing body of analysis points to significant problems with the implementation and current design of the protection, leaving borrowers—including the borrowers whom IDR is most centrally aimed at helping—saddled with debts they cannot afford or escape even after years of repayment. In particular, research indicates that many of the borrowers who need IDR the most are not accessing it, that borrowers struggle to stay on track in IDR enrollment, and that the promise of loan forgiveness has proven illusory to millions of federal student loan borrowers who have been in repayment for decades. Moreover, the Department of Education’s approach to determining “affordable” payments and levels of protected income under IDR has so far been a black box, with little insight offered into how the Department has formed its view of household finances and appropriate payment obligations. This all points to a growing gap between the promise and reality of income-driven repayment.

Even if errors in the implementation of IDR were to be fully remedied, basic flaws and shortcomings in the protection’s structure would continue to make it fall short of its promise and potential.

Much has been written about the breakdowns that have plagued the administration of IDR and led to the negative outcomes that researchers have reported, particularly as it relates to failures in the student loan servicing industry. Law enforcement, inspectors general, and policymakers at the state and federal level have all documented that widespread failures and malfeasance have kept relief out of borrowers’ reach. But while work to expose ongoing errors in the implementation of IDR remains crucial, less attention has been paid to IDR’s more structural issues. Indeed, even if errors in the implementation of IDR were to be fully remedied, basic flaws and shortcomings in the protection’s structure would continue to make it fall short of its promise and potential.

Over the coming weeks, the Student Borrower Protection Center will be publishing research exploring improvements to the IDR program, including as it relates to affordability, increased enrollment, and boosted borrower protections.

In particular, this research will explore the following questions:

  • Whether the view of affordability underlying IDR’s current payment formulas actually delivers affordability for borrowers; 
  • How IDR currently allows runaway interest to accrue while failing to account for the negative ripple effects that simply being in debt for long periods of time generates, and how this is particularly harmful for borrowers of color;
  • How administrative burdens currently built into IDR drive disparate outcomes and disproportionately low enrollment rates for borrowers who might benefit from IDR the most; and
  • How past attempts to improve IDR failed to help borrowers who were already struggling under the current system, trapping millions of borrowers in repayment for decades despite promises that IDR would prevent such outcomes. 

Borrowers need rights and protections to prevent federal student loans from becoming a financially debilitating life sentence. The Biden Administration’s stated policy agenda affirms that IDR must be at the center of this conversation. It’s time for policymakers to weigh whether the IDR program is fulfilling its promise. And if not, it’s time to boldly rethink the design and delivery of the protections that borrowers deserve.

Read more on the SBPC’s work related to income-driven repayment, including the papers in this series, here.

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The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.

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