Related Topic in the Ref Desk: Discharge, cancellation, forgiveness
By Hugh T. Ferguson, NASFAA Staff Reporter
Throughout the ongoing debate concerning student loan forgiveness and cancellation, a duo of higher education policy experts are urging that the income-driven repayment (IDR) program be reworked as a means of providing relief.
Instead of turning directly to mass loan forgiveness the paper published by the American Enterprise Institute (AEI) calls for policymakers to improve IDR’s safety net features and address the excessive benefits high-debt borrowers stand to receive through the program.
A recently published policy brief, released by the National Consumer Law Center, has shed additional scrutiny on the program, finding that only 32 borrowers have ever qualified for full forgiveness.
Authors Jason Delisle, a visiting fellow at AEI who focuses on higher education financing, and Preston Cooper, a visiting fellow for higher education policy at the Foundation for Research on Equal Opportunity, offer an analysis of the current size and scope of IDR along with the program’s evolution and then delve into reform proposals that could better tailor the program to offer relief to borrowers in need.
IDR plans are available to nearly all federal student loan borrowers and caps monthly repayments at 10% of a borrower's discretionary incomes. They also include a loan forgiveness benefit whereby remaining balances are canceled after a set period of making payments in IDR, typically 20 years, according to the authors.
“That such an apparent solution to the student debt crisis seems to be in place already complicates the current policy debate on student debt relief,” the authors write. “In theory, IDR should go a long way toward alleviating the problems of overly burdensome student debt.”
Delisle and Cooper go on to provide a detailed summary into the implementation of IDR and in what ways the program could offer more targeted relief particularly to low-income borrowers with less than $10,000 in student loan debt.
Borrowers with low-balance debts might not think IDR is for them because, according to the authors, they must spend 20 years in the program to receive forgiveness and frequently watch their balances grow if their payments do not cover interest.
“The psychological effects of long repayment terms and negative amortization for relatively small balances can dissuade these borrowers from enrolling in IDR, even though the program could keep them out of default.”
Delisle and Cooper urge policymakers to accelerate forgiveness to borrowers with less than $10,000 balances to 10 years of repayment and waive interest charges on those low-balance loans.
“If these changes are restricted to borrowers with low balances, they will add minimal extra costs for taxpayers,” the paper reads. “These additional costs could easily be offset with savings that result from reforms for borrowers with debts from graduate school.”
These costs would be offset by adjusting IDR terms for borrowers who have debts larger than $10,000.
In order to cover this cost to the taxpayer, the authors urge policymakers to increase the amount of time a borrower with a higher balance must repay their loans prior to forgiveness. The paper argues that before qualifying for loan forgiveness, borrowers with larger debts should have their repayment period raised from 20 years to 25 or possibly 30 years. The 30-year repayment option would be in place if policymakers maintain the 10% discretionary incomes terms.
Another way the paper urges policymakers to address the large benefits that high-debt borrowers can obtain through IDR is by capping the amount graduate students can borrow through the federal loan program at $20,000 per year.
“Much of the national debate about student debt is framed around whether the government ought to forgive borrowers’ balances en masse and is based largely on the assumption that the debt is unaffordable. But this ignores the payment-reduction and loan forgiveness benefits already available to all borrowers through IDR,” the authors write. “Therefore, it is imperative that policymakers fully understand the IDR program before they consider mass loan forgiveness proposals, as they may be premised on an incomplete understanding of the benefits in existing policies.”
For more information surrounding student loan debt relief, be sure to listen to NASFAA’s special "Off The Cuff" episode: All Things Student Loan Forgiveness and stay tuned to Today’s News for more developments.
Publication Date: 3/30/2021
David S | 3/30/2021 3:5:35 PM
It would be a lot more helpful if the authors could find a way to suggest changes that aren't draped in hostility towards those who have borrowed to earn a graduate degree. And their favored "fair-value accounting" is just a tool to make believe that lenders who charge borrowers interest actually lose money. I'm pretty sure that banks didn't give me a mortgage as philanthropy, I think they made a decent amount of money on the deal. It would make sense - especially on IDR, which prolongs payment thereby giving interest more time to accumulate - that the government is doing OK as well.
It's all very on-brand for the authors. They have always clearly wanted the private sector to take care of lending to graduate students...which would lead to fewer borrower protections and redlining programs outside MBA/Law/Medicine, so teachers, social workers, policy makers, artists, academics, counselors, clerics, librarians...out of luck.
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