Income-Driven Repayment Plans For School Loans Are On The Rise

A recent report from the Congressional Budget Office (CBO) indicated that income-driven repayment (IDR) plans for student loans are growing rapidly. This method of repayment is based on the income of the borrower, and is increasingly popular among students seeking graduate and professional degrees.

Enrollment marketers should thoughtfully communicate IDR plans to potential students, particularly non-traditional students who may be concerned about how they will repay loans needed for their education, in addition to managing other debts and family expenses. Income-driven repayment can be a “critical safety net” for borrowers, according to Jessica Thompson, Associate Vice President of the Institute for College Access and Success, providing the opportunity for students to benefit from the advances an education can offer, without being overburdened by loan repayment upon graduation.

IDR Plans Differ From Fixed-Payment Plans And Typically Have Positive Outcomes

When discussing loan options for incoming students, particularly students who must borrow money in order to attend college, the difference between fixed-payment plans, which used to be the standard, and IDR plans could mean the difference between foregoing or attending college.

Fixed-Payment Plans: Prior to 2010, federal student loans were typically offered by private lending institutions guaranteed by the government. Upon graduation, after a six-month grace period, borrowers made fixed payments over a set number of years, usually 10, not including any deferments. This type of repayment doesn’t factor in any additional life circumstances of the borrower, including job status, income or other debts.

Income-Driven Repayment Plans: Income-driven or income-contingent repayment plans have been kicking around since the early 1990s. The CBO explains: “Introduced as a way to make student loan repayment more manageable, income-driven plans reduce the required monthly payments for borrowers with low income or large balances. Under the most popular income-driven plans, borrowers’ payments are 10 or 15 percent of their discretionary income, which is typically defined as income about 150% of the federal poverty guideline. Furthermore, most plans cap monthly payments at the amount a borrower would have paid under a 10-year fixed-payment plan.”

There are a number of different IDR plans, including Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR). After the Obama administration expanded the program and introduced PAYE, making IDR plans for student loan borrowers more accessible, loan delinquency rates dropped. And, according to the most recent CBO report, “borrowers default on their loans at much lower rates in income-driven plans than in other plans.”

Graduate School Students Have A High Rate Of Enrollment In IDR Plans

The CBO report found that “about 45% of the volume of direct loans was being repaid through income-driven plans in 2017, up from about 12% in 2010.” During that same period, the share grew from 6% to 39% among borrowers who took out direct loans for graduate studies.

Typically, graduate students are adult learners who may have other financial obligations or debts that make IDR plans very favorable options when making final decisions about getting advanced degrees. For enrollment marketers targeting adult and non-traditional learners, it can be beneficial during recruitment to make clear the opportunities that IDR plans offer and the role IDR plans play in mitigating burdensome student loans.

Changes On The Horizon For IDR Plans

Recently, IDR plans have come under scrutiny in congress and could undergo some changes, including delaying loan forgiveness of borrowers in IDR plans by five years. There are also calls to streamline repayment for all borrowers, which could mean a return to only fixed-payment plans or simplifying the four IDR plans into one, comprehensive plan. Enrollment marketers should stay informed about any changes to IDR plans so they can offer prospective students the most up-to-date information. However, at this time, IDR plans remain in place and should be positioned as such when explaining financial aid and student loans to prospective students.

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