Fair and Manageable Loan Payments

Today, most college students find they need to borrow to get their college degree; two out of every three graduating seniors now have student loans. While loans create opportunity, rising debt burdens can harm families and threaten our nation's competitiveness in the global economy. In the spring of 2006, a wide array of organizations representing students, parents, colleges, and loan companies joined with the Project on Student Debt to appeal to Congress and the U.S. Department of Education to take action on rising student debt. The groups expressed concerns about the impact of rising debt burdens on college enrollment, the ability to buy a home and save for retirement, family formation, entrepreneurship, and public service.

Congress responded, overwhelmingly passing the College Cost Reduction and Access Act (now Public Law 110-84) in Fall 2007. Federal policies now include an Income Based Repayment (IBR) program modeled on the Plan for Fair Loan Payments developed by a coalition led by the Project on Student Debt. The new IBR program (which began July 1, 2009):

  • Limits student loan payments to a reasonable percentage of income. 

  • Recognizes that family size affects how much income is available for loan payments. 

  • Protects borrowers from compounding interest when their financial situation prevents them from making full payments.

  • Cancels remaining debts when borrowers have made income-based payments for 25 years.

  • Is available to borrowers in both the Direct Loan and the Federal Family Education Loan programs.

For more information, see IBRinfo.org, a comprehensive resource that explains the program, answers frequently asked questions, and has a place to sign up for email updates about important developments.

There are some differences between the IBR program that was passed and the original proposals in our Plan for Fair Loan Payments. 

  • While the cap on required payments and the adjustment for family size are exactly as we had proposed, the new law cancels remaining balances after 25 years rather than the 20 years we had proposed.

  • When the capped payment amount fails to cover interest charges, we had recommended that the government pay the difference for subsidized Stafford loans. The bill adopts this approach for up to three years. Beyond the three years, and with unsubsidized loans, unpaid interest accrues but does not compound.

  • "Grad Plus" loans for graduate and professional students are eligible for the payment caps, but would not be cancelled at the 25-year point. (We did not make a specific recommendation on the treatment of Grad Plus loans).

  • Under current tax law, cancelled debts are treated as taxable income. We support exempting loan cancellations under IBR from taxation as income. Congress has not yet made this change. This will be a priority for the Project on Student Debt.

There is more to be done to tackle rising student debt. See our policy agenda for more information, and join our mailing list for future updates.