By Ben Kaufman | November 2, 2020
Recently, we analyzed new data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) and found that borrowers with private student loans are in crisis—particularly Black borrowers. The same data indicate that disparities in student loan borrower distress are widespread, extending across the much larger federal student loan market. Our latest analysis of the SCF finds racial and socioeconomic disparities in which borrowers are able to access one of the most critical protections available to those struggling with federal student loans: income-driven repayment.
Income-driven repayment (IDR) is a key protection that sets federal student loan borrowers’ monthly bill at an affordable amount determined by their income, not by their loan balance. Research shows that borrowers who enroll in IDR have more success keeping up with their loan payments, pay down their non-student loan debts more quickly, and enjoy positive ripple effects across their financial lives such as improved access to other forms of credit. An analysis from the Government Accountability Office found that borrowers in standard repayment are up to 28 times more likely to default than those paying based on their income.
Source: GAO (2015)
The Department of Education pays private companies known as student loan servicers to help borrowers navigate the various repayment options to which they are entitled under the law, including during periods of financial distress. Servicers assist borrowers with IDR enrollment and help them recertify their eligibility for IDR each year. Both the Department and these servicers represent that borrowers who need help can turn to their assigned servicer for impartial, dependable guidance. For example, the Department has advised distressed borrowers by saying, “[b]efore you apply for an income-driven repayment plan, contact your loan servicer if you have any questions. Your loan servicer will help you decide whether one of these plans is right for you.” Similarly, Navient, one of the largest student loan servicers, has represented to borrowers that “if you’re having trouble, there are options for assistance, including income-driven repayment plans…. We can work with you to help you get back on track, and are sometimes able to offer new or temporarily reduced payment schedules.”
But as we’ve written elsewhere, borrowers across the federal servicing landscape—particularly borrowers of color and low-income borrowers—often do not receive critically needed information about IDR when they ask their servicer for help. Instead, these borrowers are regularly given bad guidance about their repayment options or no guidance at all, and they are frequently driven into costlier options like forbearance.
The following analysis of new data from the Survey of Consumer Finances (SCF) shows that these disparities have substantial consequences for borrowers. Building on foundational research by the Urban Institute’s Kristin Blagg (see here, here, and here), we examined how federal student loan borrowers are performing in repayment, who is able to access IDR, and critically, who is not. Methodological detail is available below.
Our findings show stark racial and socioeconomic inequities in who is accessing federal protections that should be broadly available to federal student loan borrowers:
- Black borrowers are two times more likely than their white peers to fall behind on their student loans without accessing IDR, contributing to huge racial disparities in delinquency and default. Our analysis indicates that 49 percent of Black federal student loan borrowers and 46 percent of Latinx borrowers are enrolled in IDR compared to 39 percent of white borrowers. But while Black and Latinx borrowers may be more likely to utilize IDR, the data show that the story runs much deeper. Our findings reveal that 30 percent of Black borrowers and 17 percent of Latinx borrowers have fallen behind on at least one federal student loan without enrolling in IDR compared to 15 percent of their white peers. In other words, the data point to a substantial gap between how many Black and Latinx borrowers are in IDR and how many should be in IDR. Data for other borrowers of color are limited, but available evidence suggests a similar shortfall in IDR access for Asian, Indigenous, mixed-race, and other borrowers.
The gap between IDR enrollment and IDR demand can be disastrous for the borrowers who fall within it. For example, recent analysis shows that within six years of starting college 32 percent of Black borrowers and 20 percent of Latinx borrowers default on their student loans compared to only 13 percent of their white peers. Ensuring borrowers of color benefit from IDR at a rate commensurate to their level of need would amount to providing them a proven way to lower their likelihood of delinquency, a key first step toward narrowing broader racial disparities in borrower outcomes. Until then, unequal access to IDR will continue to contribute to similarly unequal rates of delinquency and default for student loan borrowers of color, accelerating the vicious cycle by which student debt remains “both a cause and a consequence of racial inequality.”
Source: SBPC analysis of the Survey of Consumer Finances
- IDR is a universal protection under the law—but too many low-income borrowers who could benefit the most are missing out. More than half (54 percent) of borrowers at the lowest income level (those who report making up to $20,000 annually) report having fallen behind on their student loans without accessing IDR—even though effectively all borrowers making less than approximately $20,000 would qualify for a $0 payment through an IDR plan. Only four percent of borrowers at the highest income level (those making $150,000 or more annually) report similar distress. Moreover, the proportion of the lowest-income borrowers who are making income-driven payments is exactly the same as for the highest income borrowers—30 percent. The gap between IDR need and IDR enrollment for the lowest income borrowers is striking. There remains a significant number of borrowers with incomes that would allow for $0 payments through IDR, yet these borrowers are seemingly unable to access this critical protection.
Source: SBPC analysis of the Survey of Consumer Finances
- More than a quarter of borrowers accessing other forms of government assistance—who are almost certainly eligible for $0 monthly payments through IDR—are missing out on payment relief. Only 43 percent of federal student loan borrowers who rely on income-dependent government assistance programs such as the Supplemental Nutrition Assistance Program (SNAP) or Supplemental Security Income (SSI) are enrolled in IDR, even though IDR would most likely entitle all of them to a $0 monthly student loan payment. Meanwhile, more than a quarter (28 percent) of borrowers relying on public assistance programs have fallen behind on their loans while missing out on IDR and the 100% reduction of their student loan bill that it would offer. The Consumer Financial Protection Bureau has estimated that relief on this scale brings delinquency rates to zero. The social infrastructure at the federal, state, and local level that delivers the public assistance programs these borrowers have already accessed could have been harnessed to target outreach, identify at-risk borrowers, and guide the struggling toward student loan assistance. Instead, borrowers who need and could benefit from IDR the most are not accessing it. Even for borrowers who rely on public assistance programs and have managed to remain current on their loans while not in IDR (more than 22 percent of borrowers who rely on public assistance programs, not depicted below), the extent of relief and safety from financial disruption that a $0 monthly payment would offer implies that these borrowers are losing a key opportunity for savings and security.
Available data show that the rate of federal student loan default is twice as high for borrowers who rely on public assistance programs. With $0 payments available through IDR, this simply should not be the case.
Source: SBPC analysis of the Survey of Consumer Finances
- Borrowers who did not complete their course of study are more than twice as likely as their peers to become delinquent without accessing IDR. Almost one third of borrowers who did not complete their course of study (32 percent) report that they are not currently making payments on their loans and that they have not accessed IDR. These borrowers may have taken on substantial debt without securing the income boost associated with a degree, leaving them uniquely situated to ultimately find their loans unmanageable. Results along these lines are clearly visible in the data, as borrowers who did not complete their course of study are more than twice as likely to default on their loans as borrowers who graduated. Every instance of a borrower who did not complete their degree program missing out on IDR is a lost opportunity to mitigate this huge contrast in borrower outcomes. Even worse, these disparate results for borrowers who did not complete their program are in part a consequence of policy choices made under the Trump Administration. In 2016, under the Obama Administration, the Department of Education proposed tough new standards for student loan companies, including requirements to strengthen outreach and counseling specifically for borrowers who do not complete. In 2017, Secretary DeVos scrapped this plan. The present analysis shows the disastrous long-term effects of her decision.
Source: SBPC analysis of the Survey of Consumer Finances
IDR is a vital safeguard for struggling federal student loan borrowers. It promises affordable monthly student loan bills and, eventually, loan forgiveness after 20 to 25 years of payments. In doing so, IDR offers borrowers both immediate relief and long term financial security. But the infrastructure that borrowers depend on to access IDR is broken. Those who need IDR the most and stand to benefit the most from it—borrowers of color, low-income borrowers, borrowers relying on public assistance programs, and borrowers who did not complete their course of study—are not accessing IDR on a level commensurate with demand. Our findings raise substantial concerns that unequal access to IDR stems from disparities in student loan servicers’ practices as applied to different racial and socioeconomic groups, a fear that is becoming increasingly common among those who study the student debt crisis.
All student loan borrowers deserve access to the full menu of protections they are entitled to under the law. Unfortunately, the disparities highlighted here are yet another sign that the current system—including the policies and procedures put in place by the companies tasked with implementing it—is simply not up to that task.
Ben Kaufman is a Research & Policy Analyst at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.
 This analysis utilizes data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) and the methodology developed by Blagg (2018), as deployed in the blog posts “The demographics of income-driven student loan repayment” and “Who uses income-driven student loan repayment?” Following Gale, Gelfond, Fitchtner, and Harris (2020), we divide the SCF’s survey weight parameter (x42001) by five to produce summary statistics. Whether a borrower has federal student loans and how much the borrower owes on those loans is calculated using the answer to the question “How much is still owed on this loan?” for possible loans 1-6, provided that the answer to the question “Is this loan a federal student loan such as Stafford, Direct, PLUS, or Perkins?” is “Yes” for the associated loan. Borrowers must be at least one year removed from enrollment (i.e., variables x8030 et al. are greater than zero) and not currently in a deferment or grace period (this redundancy is added to exclude people who may have re-enrolled or entered a different post-secondary program; it is reflected in variables x9300 et al. not being equal to 4). Following Blagg (2018), we consider only debt owed by the respondent or the respondent’s spouse. Within that subset (borrowers owing federal debt for the respondent’s education or the respondent’s spouse’s education while at least one year removed from enrollment and not re-enrolled in a new program), each borrower is coded as currently making payments on all of his or her loans or not and as being enrolled in IDR or not as follows:
1) A borrower is coded as utilizing IDR and currently making payments on all of his or her loans if he or she has at least one federal loan that he or she is currently making payments toward for which the answer to the question “Is the payment amount (on this loan) (you/he/she/he or she) owe each month determined by (your/his/her/his or her) income, for example an Income-Based Repayment Plan, Pay as you Earn Plan, or Income-Contingent Repayment Plan?” is “Yes;”
2) A borrower is coded as utilizing some other repayment program (such as standard repayment) and currently making payments on all of his or her loans if he or she does have federal loans on which he or she is making payments, but he or she has no federal loans on which he or she is making payments using IDR (using the answer to the same question posed above);
3) A borrower is coded as not currently making payments on his or her loans and being enrolled in IDR if he or she has at least one federal loan that s/he is not making payments toward (using x7806 et al.), and he or she reports that his or her payments on that loan are determined by his or her income (using x7422 et al.); and
4) A borrower is coded as not currently making payments on his or her loans and not being in IDR if he or she has at least one federal loan that s/he is not making payments toward (using x7806 et al.), and he or she does not report that his or her payments on that loan are determined by his or her income (using x7422 et al.).
Like Blagg (2018), we find that roughly six percent of borrowers fall into more than one category. However, we broaden our IDR category to include anyone in our examined subset with any loans in IDR, and we broaden our non-repayment category to include anyone in our examined subset with any loans that he or she is not currently making payments on, so any borrowers with overlap are ultimately subdivided into one of our four categories.
Accordingly, graphical representations of the “[p]ercent of borrowers making payments in IDR” throughout this analysis refer to the percent of borrowers in a given group coded as being current and using IDR ((1), above) and representations of the “[p]ercent of borrowers who fell behind without accessing IDR” refer to the percent of borrowers in a given group coded as not currently repaying all of their loans and not being enrolled in IDR on any of those loans ((4), above).
Race is identified based on the self-reported race of the head of household (x6809) and income is the self-reported value for total household income (x5729). Educational attainment is taken as the greater of the respondent’s highest level of educational attainment (x5931) or their spouse’s (x6111). Whether a borrower relies on public assistance programs is identified based on whether they reported having received “Supplemental Security Income (SSI), Food Stamps (SNAP), Welfare, or Other Government Benefits” (x7563) or having had additional deposits that were “Supplemental Security Income (SSI) and other types of welfare” or “Government payments (not classified elsewhere).”
Survey weights are applied to find the mean proportion of each demographic group in each repayment group.
Note that the rate at which borrowers depicted here have fallen behind on federal student loans should not reflect the rates represented in the table “Race and Distress Across Loan Types” in our recent analysis using the same SCF data because additional restrictions (such as looking only at debt owed for the education of the respondent or the respondent’s spouse) were placed on the present analysis.
 Note that the Federal Reserve Board’s public dataset aggregates Asian, Indigenous, mixed-race, and other respondents into one category, as reflected in the “Other” group used in this analysis.
 Borrowers’ payments under IDR are set at $0 if their income is below 150% of the federal poverty guideline based on their location and number of children. The federal poverty guideline for a single person living in the contiguous U.S. is currently $12,760, implying that a borrower qualifies for a $0 payment under IDR if his or her income is below $19,140. Note that our analysis includes only borrowers who report at least $1 of income.
 See  above. Whether a borrower relies on public assistance programs is identified based on whether they reported having received “Supplemental Security Income (SSI), Food Stamps (SNAP), Welfare, or Other Government Benefits” (x7563) or having had additional deposits that were “Supplemental Security Income (SSI) and other types of welfare” or “Government payments (not classified elsewhere).”
The SCF data also include information on whether borrowers accessed non-income based federal assistance programs such as “Social Security or Disability; VA Disability; [or] Railroad Retirement” (x7124) or various “other types of welfare” (x7125). These programs are not considered in the present analysis so that we might highlight that many low-income borrowers who would likely benefit the most from IDR, including through eligibility for a $0 payment, are not accessing it. However, both our own findings and others’ research suggest that many federal student loan borrowers who have accessed these additional non-income based welfare programs are also struggling in repayment and could benefit from IDR. For example, the Consumer Financial Protection Bureau has found that “nearly 40 percent of federal student loan borrowers age 65 and older are in default,” and that “[o]lder student loan borrowers on fixed incomes complain that servicing roadblocks and processing errors limit their ability to enroll in income-driven repayment (IDR) plans.” Note that Social Security benefits are the only source of regular retirement income for 69 percent of beneficiaries age 65 and older and that the estimated average Social Security retirement benefit in 2020 is $1,503 a month ($18,024 annually, well below the threshold for $0 payment eligibility under IDR defined in ).