Update: New America has released Safety Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans. The paper can be accessed here.
Next week, the New America Foundation will release a paper examining pending changes to the Income-Based Repayment (IBR) program for federal student loans. Today, we are releasing the calculator we used to develop our findings.
The pending changes to IBR are the result of an Obama administration proposal to change the federal student loan program’s existing Income-Based Repayment (IBR) plan—which caps borrowers’ payments at 15 percent of their incomes and forgives any remaining debt after 25 years of payments—by reducing payments to 10 percent of a borrower’s income and providing loan forgiveness after 20 years of payments. Congress enacted this proposal two months after the President proposed it in his 2010 State of the Union address, but limited it to students who take out their first loans on July 1, 2014 or later. Anxious to deliver those benefits sooner, the Obama administration announced last year that it would instead make the plan available as early as this year—to borrowers who took out their first student loans in 2008 or later and borrowed at least one loan in 2012 or later. The final regulations are still pending.
To date, policymakers and advocates have provided little information about the benefits that the impending changes to IBR will provide to borrowers with different income and debt profiles over their entire repayment terms. Instead, they illustrate what a borrower with a certain income and debt load would pay for one month under IBR. (The Obama-Biden 2012 campaign website’s “Student loan reform: The facts” is just one example of the short-term illustrations.) Unfortunately, that sort of snapshot view leaves a lot of important questions unanswered:
- How do the pending changes to IBR affect borrowers over time, as their incomes change?
- How much can a borrower earn and still receive loan forgiveness?
- How much will he have forgiven if his income follows a certain path over his career?
- How does the program compare to other repayment options offered on federal student loans, like consolidation, over the long term and in terms of monthly payments?
- Can a borrower end up paying more overall under IBR than other plans?
- Will the pending changes provide windfall benefits to higher-income borrowers?
We searched for answers to these questions, but thus far, no one seems to have asked them—even though the new IBR program will enroll its first beneficiaries by the end of this year. So we developed our own IBR calculator to examine how borrowers fare under the old (2009) IBR and the new (2012) IBR and other repayment options.
Our findings will be published in the forthcoming paper, Safety Net or Windfall?: Examining Changes to Income-Based Repayment for Federal Student Loans, next week. In the meantime, we are making available here for download the New America Foundation IBR calculator. We encourage readers to use it to see for themselves what the pending changes to IBR will mean for borrowers. (The calculator allows users to enter in a borrower’s initial loan balance and income over 25 years to display monthly and total payments as well as loan forgiveness under the old and new IBR.)