Blog Post | April 30, 2019

Plans to Streamline Income-Driven Repayment Show Both Overlap and Divergence

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Read our related full report here.

Income-driven repayment (IDR) plans set monthly student loan payments based on income and family size, allowing borrowers to pay more when their income is higher. Yet, the current array of such plans available today – for which eligibility requirements, costs, and benefits vary – creates barriers to successfully navigating student loan repayment. The variety of available plans can also contribute to under-enrollment in IDR plans by the borrowers who need it the most.

There is broad and bipartisan recognition of the need to simplify and improve IDR, and multiple policymakers have put forth specific proposals to reform and streamline IDR. TICAS has also developed a detailed proposal for a streamlined IDR plan, which including specific examples of the relative cost to borrowers of different IDR design decisions.

The details of IDR design directly impact policymakers’ ability to simplify student loan repayment while avoiding unintended consequences that increase the cost of student debt, particularly for the lowest income borrowers. The ability of IDR to fulfill its promise as a safety net for borrowers and the degree to which benefits flow to borrowers in the most need of relief depend on specific design decisions. These decisions include fundamentals like how monthly payments are calculated and how long borrowers remain in repayment before the balance of the loan is forgiven. And even more technical design elements, like the treatment of interest, affect the cost of debt repaid in IDR plans.

Several major legislative proposals to establish a streamlined IDR plan have been introduced in the former and current Congress. These include Senator Merkley’s (D-OR) Affordable Loans for Any Student Act (S. 1002, 116th Congress)[1] (a proposal also incorporated in Representative Scott’s comprehensive proposal to reauthorize the Higher Education Act, the Aim Higher Act (H.R. 6543, 115th Congress)); Senators King (I-ME) and Burr’s (R-NC) Repay Act (S. 1176, 115th Congress); Senators Warner (D-VA) and Rubio’s (R-FL) Dynamic Repayment Act (S. 799, 115th Congress); and Representative Zeldin’s (R-NY) ExCEL Act (H.R. 2580, 115th Congress).[2] Representative Foxx’s comprehensive proposal to reauthorize the Higher Education Act (the PROSPER Act, H.R. 4508, 115th Congress) included a reformed single IDR plan, and a single IDR proposal was also included in the last three President’s budgets.[3]

We reviewed the details of the IDR repayment plan in all of these major proposals, [4] as well as the most recently created IDR plan, REPAYE, to identify their approach to key design details and shed light on areas of policy agreement beyond broadly reducing the number of available repayment plan options. The summary table below (click for full size) demonstrates key areas of consensus as well as divergence.

 

Our analysis of the design details of key proposals identified a number of encouraging areas of full or near consensus, including that:

  • IDR is provided as an option to borrowers rather than mandated or universal;
  • IDR provides debt forgiveness after some fixed period of repayment;
  • IDR is available to student borrowers with federal loans regardless of their debt-to-income ratio;
  • IDR benefits are better targeted to those who need them most:
    • All borrowers in IDR always make payments based on their income;
    • Married borrowers are treated consistently, regardless of how they file their taxes; and
  • Borrowers enrolled in IDR have the option for automatic annual income certification to stay enrolled.

The proposals we reviewed also diverge on a number of key design details that directly impact the cost of student loan repayment, including:

  • The share of income a borrower must put toward monthly loan payments;
  • The number of years a borrower must be in repayment before any remaining debt is forgiven;
  • The treatment of accumulated interest growth;
  • Circumstances under which interest capitalizes during enrollment; and
  • The tax treatment of debt forgiven in IDR.

As Congress continues working towards a comprehensive reauthorization of the Higher Education Act, we’ll be exploring in more detail these key design decisions and releasing a fuller analysis of areas of consensus and divergence.

[1] The Affordable Loans for Any Student Act was also introduced in the House by Representative DeLauro (H.R. 2065, 116th Congress).

[2] The ExCEL Act was introduced prior by Representatives Polis and Hanna (H.R. 2580, 115th Congress).

[3] Several key design details of the President’s proposal are not publically available.

[4] We focus specifically on the design of a proposed income-driven repayment plan. Some of these bills also make other changes to the loan program, including the creation of a new single loan program, inclusive of different interest calculations and changed loan limits, as well as the availability of other benefits like PSLF.