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The Cost of Student Income-Based Repayment Plans

Posted By:  |  August 20, 2015  |  0 Comment(s)

In a recent article on The Atlantic, writer Mikahail Zinshtenyn asks who is responsible for picking up the graduate student debt? This may not be a top question on minds of student borrowers, although it is a rising cause for concern among tax payers.

According to the U.S. Department of Education we are seeing newer government programs allowing student loan holders to become enrolled in an income-based repayment plan. Statistics show that these plan types have skyrocketed to more than 50 percent since last year alone, with 3.9 million borrowers signed up as of this June.


These income based repayment plans have been around since the early 90’s only we are beginning to see a rise in enrollment as of a few years ago. While these plans may help student borrowers slash their monthly payments, this leaves taxpayers coughing up what is left should student loan forgiveness come into play.

When looking into how these plans work, typically the borrowers will show cause with statements of income to debt ratio. Depending on which program is selected, the borrower may be allotted a 25 year repayment plan, again, all based on income. Should the entire amount borrowed, with interest, not be paid within the time frame the remaining debt will be “excused.” While this plan can be rewarding to the borrower, it is the federal government who will absorb the remaining amount – meaning this will cut into taxpayer’s gross funds, which is the real concern.

Although the federal government places limits on the amount an undergraduate may borrow – $57,000 for independent students and $31,000 for dependants – the stipulation is set that grads take only what they will need for the cost of attendance, including living expenses and tuition. This results in graduate students needing the least amount of relief, such as bachelor’s holders, the best option to pay their debts entirely without forgiveness.

According to The Wall Street Journal graduate school loans account for 40 percent of the entire $1.2 trillion in student debt, although a mere 14 percent attend a graduate school program. In their report they state that in the past decade the percentage of borrowers has quintupled to around 2 million, with individual debts exceeding the $100,000 mark.

Recent data posted by the Department of Education found that are 41 million borrowers overall in the United States repaying loans, with $200 billion signed up through an income based repayment program. Roughly half of the programs participants are graduate school students. A comment made by Jason Delisle, and education analyst at the New America think tank, said, “It makes sense.” And “They enroll because they need it.”

The Obama administration and think tanks have made a recent rule extending the loan repayment period from 20 to 25 years for many graduate student borrowers, but also forgiving a portion of the funds borrowed. For example, there is a federal program that will provide $150,000 of loan forgiveness to those who attend Georgetown Law, Delisle mentioned.

With the Consumer Financial Protection Bureau pointing out the struggle of the initial application process to these loan programs, the Obama administration have proposed to closing some of those loopholes in the near future.


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