Critics of income-based repayment programs charge that they do a poor job of managing the expenses the federal government must absorb in the event students don’t fully repay their original loan amounts. And that’s a real concern given that borrowers who attended graduate programs also are eligible for income-based repayment. While the federal government places borrowing limits on the federal loans undergraduate students can take out—$57,500 if the student has an independent tax status, and $31,000 if the student is considered a dependent—the only stipulation for graduate students is that they take out no more than the cost of attendance, which in addition to tuition includes living expenses. The result is that the borrowers who likely need debt relief the least—graduate students, who on average earn far more than even bachelor’s degree holders—can look forward to the most generous debt relief through income-based repayment programs.
The Wall Street Journal reported yesterday that graduate-school loans account for 40 percent of the entire $1.2 trillion student debt pie, even though just 14 percent of borrowers attended a graduate school program. In the past decade, the percentage of borrowers with debts exceeding $100,000 has quintupled to nearly 2 million borrowers, the Journal notes.
Already more than $200 billion in loans are signed up through income-based repayment programs, according to a Bloomberg Business article that ran in early August, which appears to be a big change from a year and a half ago, when 1.3 million borrowers were enrolled in the programs. The most recent DOE data shows there are 41 million borrowers overall in the United States repaying their public student loans.
The uptick in borrowers with repayment plans pegged to their incomes is one of the reasons the Congressional Budget Office in January and March estimated that student-loan debt will cost taxpayers an additional $66 billion in the period between 2015 and 2024. Given the income the government generates from various other federal student loan programs, it claims taxpayers still come out ahead in servicing student loans, particularly graduate student loans and those taken out by parents for their kids (though there’s a fierce debate over whether the government calculates its student debt revenue accurately).
Jason Delisle, an education analyst at the New America think-tank calculated that income-based repayment programs are costing taxpayers $11 billion a year. Federal-budget followers warn that as more colleges wise up to income-based programs and their potential for debt forgiveness, they could charge higher tuition and encourage students to assume the costs, with Uncle Sam swallowing their debt loads. Anecdotally, there’s precedent for this worry: In 2013, Delisle and colleagues wrote about an administrator at Georgetown University’s law school encouraging students to take out large amounts of debt that’d be excused after 10 years as part of the income-based repayment program’s public-service provision.