GAO: Income-Driven Repayment Serves Largely Low-Income Students, Can Help Prevent Default

By Allie Bidwell, Communications Staff

A new report from the Government Accountability Office – released Thursday by Sen. Patty Murray (D-WA) – found that while income-driven student loan repayment plans are still underutilized, the majority of those enrolled are low-income students who may need the most help.

Murray, who is the minority leader on the Senate Health, Education, Labor, and Pensions Committee, in 2013 requested a GAO study on federal income-driven repayment plans and Public Service Loan Forgiveness, along with former Sen. Tom Harkin (D-IA). When Murray and Harkin requested the study, about 2 to 3 percent of borrowers were utilizing income-driven repayment plans. According to the GAO report, 19 percent of Direct Loan borrowers who were in repayment in September 2014 were enrolled in an income-driven repayment plan: 13 percent in Income-Based Repayment (IBR), 2 percent in Pay As You Earn (PAYE), and 4 percent in another type of income-driven repayment.

“While some of my Republican colleagues have attacked these important debt relief options and targeted them for short-sighted budget cuts, this report shows that not only are these plans serving the individuals who need the most help, we should be expanding efforts to help borrowers who are struggling under the crushing burden of debt,” Murray said in a statement. “I am going to continue to fight for ways to bring down the high cost of college and reduce student debt, so more students have the chance to gain a foothold into the middle class through higher education and to help our economy grow from the middle out, not the top down.”

Overall, the report found that 70 percent of borrowers enrolled in IBR and 83 percent of borrowers enrolled in PAYE were low-income individuals, earning less than $20,000 per year.

Participating in the income-driven repayment plans was also found to help reduce defaulting on federal student loans, the report said. Fewer than 1 percent of borrowers who entered repayment between 2010 and 2014 and enrolled in an income-driven repayment plan defaulted on their loans, compared to 14 percent of borrowers on standard 10-year repayment plans, the report said. A footnote in the report also said that 70 percent of borrowers who defaulted on their loans met the income requirements for IBR, although defaulted loans are ineligible for IBR until they’re rehabilitated.

While the income-driven repayment plans can be beneficial for low-income students, the report said the Department of Education (ED) has not consistently given information about these plans to borrowers in repayment, and instead relies on loan servicers to communicate that information.

“The inconsistency and gaps we identified in how Education and its loan servicers communicate with borrowers about income-driven repayment raise questions about the sufficiency of this information,” the report said. “Without such information, borrowers who are unaware of these plans may miss the opportunity to reduce their risk of delinquency or default.”

GAO recommended that ED increase its efforts to consistently reach out to borrowers in repayment and notify them about their options for income-driven repayment plans. In written comments in response to the GAO report, ED said it generally agreed with the recommendations, but “it is not clear that providing information on repayment options to all borrowers is the most efficient or effective way to achieve this goal,” the report said.

James Runcie, chief operating officer of Federal Student Aid, said in the written comments that ED was also concerned that the report’s conclusions overstate “the extent to which borrowers lack awareness of the income-driven repayment plans and fail to reflect the successful outreach efforts undertaken by [ED] over the past few years.”


Publication Date: 9/18/2015

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