Washington, D.C. — The Obama administration announced today that its redesigned Income-Based Repayment (IBR) plan for federal student loans is now final. The plan is meant to help struggling borrowers repay their loans, but according to a report published last month by the New America Foundation’s Federal Education Budget Project (FEBP), Safety Net or Windfall? Examining Changes to Income-Based Repayment for Federal Student Loans, it also will provide substantial benefits to borrowers earning high incomes.
The new IBR (also called “Pay As You Earn”) is intended to speed up the implementation of a virtually identical program enacted by Congress in 2010 that was set to take effect in 2014. It changes the federal student loan program’s existing IBR plan by lowering student loan payments from 15 to 10 percent of a borrower's discretionary income and accelerating loan forgiveness from 25 years to 20 years.
"The biggest winners under the new policy are not borrowers struggling to repay undergraduate debt, but graduate and professional students who can borrow unlimited amounts of federal student loans," said Jason Delisle, FEBP director and co-author of the report. "Those borrowers stand to have over $100,000 in debt wiped away by the new policy, even if they are among the highest earners in the country. Directing scarce aid to well-off borrowers who have graduate degrees is bad policy given that too many students struggle to afford an undergraduate education.”
The New America Foundation's FEBP published its report last month with recommended changes that the U.S. Department of Education could adopt to address the flaws in the new IBR plan while maintaining many of the new benefits the Obama administration sought. The regulations implemented today do not include those recommendations but policymakers still have ample opportunity to address the issues raised and fix the program.
To view the full report, please click here.
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