Helping young people being crushed by their student debt is a nice idea. It’s also easier said than done, even when policymakers mean well.
The New America Foundation (NAF) released an analysis criticizing recent changes the government made to its Income-Based Repayment (IBR) plan for student loans. Introduced in 2007 under The College Cost Reduction and Access Act, IBR joins other existing options available to students when they must begin paying off their loans.
In the “Old” configuration, IBR limits the amount a qualified borrower must pay on a federal loan to 15% of their income. The government expunges any remaining debt after taking that 15% for 25 years. The Health Care and Education Reconciliation Act of 2010 shaves that 15% down to 10%, and reduces the 25 years until debt is expunged to 20. This is the “New IBR.”
The “New IBR” treats “[M]iddle and high-income borrowers who attend graduate and professional school” to “significant new benefits,” argues NAF. Low-income borrowers, however, “will see minimal new benefits” despite the fact that they need help most; they are the most likely to default on student loans. Meanwhile, middle-income borrowers who elect not to take on hefty sums of debt “will actually pay more and for longer due to the pending changes,” should they choose to enroll in an IBR plan.
It’s like a casino; high rollers who take big risks get comped.