As of 2017, approximately half of student debt is being repaid through income-driven plans, says a report issued by the Congressional Budget Office (CBO) this month.
The report, titled “Income-Driven Repayment Plans for Student Loans: Budgetary Cost and Policy Options,” examines the budgetary costs and policy options of income-driven student loan repayment plans. These plans tie the amount of payments to a borrower’s income and allow for forgiveness after 20 to 25 years. They were introduced by Congress to reduce defaults.
“A lot of people cannot make their minimum student loan standard payments,” said Robyn Smith, of counsel to the National Consumer Law Center, who has represented many people on issues of student loans. “If they can’t make their minimum payments and they don’t have an income-driven repayment plan, they will go into default.”
Individuals in default are at risk of having their Social Security offset, their tax refunds taken or their wages garnished. Smith said it’s a big issue for many first-generation college students, people of color and others with economic challenges.
“All of those folks that are really struggling and are near the federal poverty level—even within 150% of it, which is now the cutoff—they really need this otherwise they will absolutely go into default and face the consequences for that,” said Smith.
CBO’s report examines how income-driven student loan repayment plans differ from plans with fixed monthly payments. The report was requested by the Chairman of the Senate Committee on the Budget, Sen. Mike Enzi (R-WY), and the Chairman of the Senate Committee on Health, Education, Labor, and Pensions, Sen. Lamar Alexander (R-TN).
It details how income-driven plans have changed over time and how these plans are projected to affect the federal budget. The main source for historical information on borrowers’ loan balances and repayment plans was the National Student Loan Data System.
