IDR Faces Increasing Scrutiny With New Reports Highlighting Program Shortfalls and Calls for Reform

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

Promises of income-driven repayment (IDR) plans serving as a tool to help ease the burden of student loan debt for borrowers have not yielded the policy objectives set at their creation, and as higher education advocates look to bolster protections for student loan borrowers, a new report is highlighting ways in which the program can be retooled.

While the Department of Education (ED) has announced impending changes for IDR plans, following documented “administrative failures,” there are additional steps a federal watchdog says need to be taken to ensure the program delivers its intended promises.

The Government Accountability Office (GAO) this week issued a report highlighting the ways in which ED has not done enough to ensure that all eligible borrowers enrolled in IDR plans have received the forgiveness that they’re entitled to.

In its review GAO “found thousands of borrowers still in repayment who could be eligible for forgiveness now,” underscoring key issues with repayment plans that were meant to offer relief to borrowers in need.

To rectify these issues, GAO has created five recommendations for Federal Student Aid (FSA) to undertake to ensure that accurate information is provided to student loan borrowers, and that payment tracking errors and the accurate counting of qualifying payments are addressed by ED.

Specifically, GAO requests that FSA implement procedures to identify loans that are at higher risk of having payment tracking errors, clearly communicate to borrowers what counts as a qualifying payment, and ensure regular updates for borrowers who did not have loans serviced by ED’s original loan servicer for the Direct Loan program.

“Unless Education ensures borrowers are better informed about forgiveness requirements and qualifying payment counts, IDR borrowers may make uninformed decisions and be unable to correct inaccurate counts, potentially delaying forgiveness,” GAO wrote.

These issues with IDR plans have prompted advocates to look for ways to better tailor these relief programs to meet the needs of borrowers.

In one report recently issued by the Urban Institute, authors argue that the repayment framework is not unworkable, but that it should instead be better tailored to offer more significant protections for individuals enrolling in higher education as a means of improving their long-term financial well-being.

“The current problems with the IDR system are not an indictment of the basic approach but are signs of problematic design details and implementation failures,” authors Sandy Baum, nonresident senior fellow and Jason Delisle senior policy fellow of the Urban Institute wrote.

In recent months though, IDR has faced additional scrutiny. An NPR article found that only 32 of the roughly 4.4 million borrowers eligible for the program had received intended relief, and former Education Secretary John B. King, Jr., conceded that these repayment options have not addressed the student debt crisis as they were intended to.

On the heels of this reporting, ED announced that it will perform a one-time adjustment to count some borrowers’ accounts in long-term forbearances toward both IDR and Public Service Loan Forgiveness (PSLF) qualifying payments, resulting more than 3.6 million borrowers slated to receive at least three years of additional credit toward IDR forgiveness.

Prior to the announcement, congressional Democrats have urged ED to both extend the student loan payment pause until 2023 and use the intervening time to adopt “meaningful and lasting reforms” to IDR plans.

“Borrowers have for too long, lived with ballooning debts and the false promise of loan forgiveness after 20 or 25 years in income-driven repayment. Payments must be corrected retroactively in order to provide relief to borrowers who have already been harmed by this broken safety net” wrote Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), chairs of the Senate and House education committees.

In order to help further address these adverse outcomes, the Urban Institute paper presents four key areas of recommended changes to better carry out the intent of IDR plans.

Specifically, the paper calls for policymakers to implement a single and automatic IDR option, raise the income threshold to 200% of the federal poverty level, focus on forgiving small debt balances, and lastly to diminish the extent to which borrowers see their balances increase due to interest accrual.

By taking these steps, the authors argue, policymakers will be able to better target subsidies to borrowers who need them most.

The Urban Institute’s paper also cautions that in order to best protect borrowers, there will need to be changes to how borrowers are enrolled in IDR plans, how their loans are serviced, and that a sole focus on IDR will not serve as a silver bullet to solving affordability stresses associated with higher education.

“The student loan repayment system should be simple to understand and easy to navigate. Some of the recommendations in this report may add complexity to the system,” the authors write. “There might be more than one interest rate on the debt students take out, and borrowers may not be able to predict how long they will have to repay before reaching forgiveness until they know the total amount they will borrow over their academic careers. But ensuring that such approaches are designed in the most straightforward way possible and explained clearly can ensure that the advantages outweigh any added confusion.”


Publication Date: 4/25/2022

David S | 4/25/2022 5:6:31 PM

We provide student loan borrowers with what seems like 117 different repayment plans and then we're shocked that this causes confusion (insert eye roll emoji here).

Student loan borrowers in the UK start repaying a fixed percentage of their income over x amount once their income rises above that amount, and the repayment is made as a payroll deduction. Once you reach a certain age, if you still have some to repay, doesn't matter, you're, possible loan forgiveness. And you know what as a nation they don't spend all of their time worrying about? Student loan debt or the fact that some borrowers will not repay the entire amount. The goal of their student loan program is to get more people educated, not so the government can make a profit, and the repayment is simple and not driven by ways to punish those who fall behind.

Darren C | 4/25/2022 11:22:17 AM

I will say if the proposed solution is being sold as "Borrowers shouldn't, or can't pay back their entire student loan debt" then clearly the problem is tied to the cost of education vs. the economy, cost of living, salaries, employment, etc. None of that ever seems to be the focus however and people in places of power never seen to ask why.

Until these "leaders" in our Government and education truly step up and address the deep seeded, systemic problems with the education system in this country, then IDR's are simply another way to kick the can down the road, make some people happy in the moment and not really fix anything.

Ben R | 4/25/2022 8:41:05 AM

Perhaps the promissory note should now read, “I promise to pay, or not pay, until my loans are eventually cancelled one way or the other.”

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