Income Based Repayment: Advocates Call On Biden To Enact Sweeping Reforms For Student Loan Borrowers


WASHINGTON, DC – JANUARY 06: US President Joe Biden gives remarks in Statuary Hall of the U.S … [+] Capitol on January 6, 2022 in Washington, DC. (Photo by Greg Nash-Pool/Getty Images)

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A coalition of advocacy groups is calling on President Biden to enact sweeping changes to income-driven repayment plans for federal student loan borrowers.

Income Based Repayment Plans: How They Currently Work For Federal Student Loan Borrowers

Income-driven repayment (IDR) is a category of federal student loan repayment plans that tie a borrower’s monthly payment to their income. The plans use a formula that bases a borrower’s payment on their Adjusted Gross Income and family size. Borrowers must recertify their income annually, resulting in periodic adjustments to their monthly payments. If any loan balance remains after 20 or 25 years (depending on the plan), it gets forgiven, although this could be treated as taxable “income” for many borrowers under current law.

Advocates for student loan borrowers have been critical of the current IDR system, pointing out a number of serious, systemic problems:

  • Multiple IDR plans, each with its own eligibility criteria and payment calculation formula, creates a confusing array of options for borrowers to navigate, and leaves plenty of room for servicers to make mistakes. There’s Income Contingent Repayment (ICR), Income Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
  • Innocent oversights or mistakes by borrowers, and systematic loan servicing problems, can sometimes interfere with annual income recertification, leading to forbearance, lost progress towards eventual loan forgiveness, and interest capitalization.
  • Under any IDR plan, student loan borrowers may see their loan balances increase enormously over time, even while they comply with IDR payment obligations, due to negative amortization.
  • Few borrowers have actually obtained loan forgiveness under IDR programs, meaning the student loan forgiveness benefits are largely untested. According to the Department of Education’s statistics, only a few dozen individual borrowers have achieved loan forgiveness so far.

Advocates Call On Biden To Make Huge Changes to Income Based Repayment Plans

On Wednesday, the National Consumer Law Center, the Student Borrower Protection Center, and the Center For Responsible Lending released a joint proposal calling on the Biden administration to use executive action to provide relief to borrowers by temporarily relaxing IDR plan requirements and restrictions. The groups called for several major changes:

  • On a retroactive basis, count all months since the borrower entered repayment following their grace period as qualifying months towards student loan forgiveness under IDR plans, regardless of their repayment plan and regardless of whether they were in deferment, forbearance, or default. This would dramatically accelerate millions of borrowers’ student loan forgiveness timeline.
  • Provide relief automatically, without borrowers submitting a formal request. The groups argue that the Department of Education has all the available data necessary to implement the changes without relying on loan servicer records or a borrower application.
  • Ensure that all federal loan borrowers, regardless of loan program, have access to the IDR relief, including FFEL loan borrowers and Perkins loan borrowers.

The groups liken the proposal to the Limited PSLF Waiver program announced by the Biden administration in October. Under that program, the Biden administration is temporarily relaxing key program requirements for the Public Service Loan Forgiveness program to allow more borrowers to potentially qualify for relief.

“The promise of IDR forgiveness after 20 to 25 years should be a light at the end of the tunnel for student loan borrowers,” said Abby Shafroth, director of the National Consumer Law Center’s Student Loan Borrower Assistance project, in a statement. “But just as 99% of public servants who thought they had qualified for PSLF forgiveness after the first 10 years of the program were denied—owing to a combination of program complexity, poor servicing and servicing errors—a vanishingly small number of borrowers are qualifying for IDR forgiveness 25 years into the program’s existence for these same reasons. The Department did the right thing by acknowledging that the system had failed borrowers in public service and waiving barriers to PSLF forgiveness, and should do the same thing to restore IDR’s promise.”

“Millions of student loan borrowers are buckling under the weight of a broken system,” said Persis Yu, Policy Director and Managing Counsel at the Student Borrower Protection Center. “The failures of income-driven repayment have kept borrowers in unaffordable debt for decades too long. It is time for the Biden Administration to do its part and fulfill the promise of IDR by giving borrowers the credit they deserve.”

What Will The Biden Administration Do?

So far, the Biden administration has not indicated that it has any plans to institute immediate changes to income-driven repayment plans through executive action as it did for the Public Service Loan Forgiveness program.

The Education Department released a proposal last year for a new income-driven plan, tentatively called Expanded Income Contingent Repayment, or EICR. While the proposed EICR plan would provide for lower payments for certain low-income borrowers, advocates have been harshly critical of several features of the proposal, including a complicated repayment formula that results in higher monthly payments for higher income earners, the exclusion of Parent PLUS borrowers and graduate school borrowers, and the Department’s apparent failure to fix the ongoing problems with the existing IDR plans. Rulemakers on the Department’s negotiated rulemaking committee failed to reach consensus on the EICR proposal, making its future uncertain.

The Department also released a proposal to eliminate certain interest capitalization triggers, including triggers related to leaving an IDR plan or failing to receritfy income on time. Rulemakers reached consensus on those plans, but enactment would not occur until July 2023, and the benefits would not be retroactive.

Further Student Loan Reading

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4 Signs That Student Loan Cancellation Isn’t Off The Table

Want Student Loan Forgiveness? Here’s A Roadmap

3 Big Takeaways From Biden’s Surprise Extension Of Student Loan Relief

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