As of June 2016, 24 percent of federal Direct Loan borrowers who are repaying their loans (or 5.3 million borrowers) were doing so in income-driven repayment (IDR) plans, compared to 10 percent in June 2013.

Student Debt: Enrollment in ‘Income-Driven Repayment’ Plans is Surging

Student Debt: Enrollment in ‘Income-Driven Repayment’ Plans is Surging

A program to help overburdened student-loan borrowers is costing the U.S. Department of Education (DOE) much more than anticipated, according to a new report from the Government Accountability Office.

The good news: Over the next few years, the federal government is likely to forgive up to $108 billion in student loans, according to the GAO, which investigates different issues for Congress. As of June 2016, 24 percent of federal Direct Loan borrowers who are repaying their loans (or 5.3 million borrowers) were doing so in income-driven repayment (IDR) plans, compared to 10 percent in June 2013.

IDR plans help ease student debt by setting loan payments as a percentage of borrower income, extending repayment periods from the standard 10 years to up to 25 years, and forgiving remaining balances at the end of that period.

The bad news: the DOE underestimated the federal cost of the IDR plans, which the GAO says had almost doubled from $25 billion to $53 billion for student loans issued between 2009 to 2016, mostly a result of the surging volume of loans that are being shifted into these repayment plans.

“While actual costs cannot be known until borrowers repay their loans, GAO found that current IDR plan budget estimates are more than double what was originally expected for loans made in fiscal years 2009 through 2016,” the GAO said.

IDR plans help ease student debt by setting loan payments as a percentage of borrower income, extending repayment periods from the standard 10 years to up to 25 years, and forgiving remaining balances at the end of that period.

The GAO is making six recommendations to Education officials to improve the quality of its IDR plan budget estimates. These include adjusting borrower income forecasts for inflation; completing planned model revisions; and ensuring that these models generate reasonable predictions of participation trends among student borrowers.

“Education generally agreed with GAO’s recommendations and noted actions it would take to address them,” the GAO said.

 

 

Leave a Reply