What is the significance of this new development?
It's complicated. First of all, REPAYE is the federal government's fourth income-based repayment plan. We now have:
- ICR Plan (Income-Contingent Repayment Plan)
- IBR Plan (Income-Based Repayment Plan
- PAYE (Pay As You Earn Repayment Plan
- REPAYE (Revised Pay As You Earn Repayment Plan)
Not all borrowers are eligible for all plans, and some plans are more favorable to debtors than others. DOE issued a 26-page set of guidelines called "Income-Driven Repayment Plans: Questions and Answers," but the guidelines are complicated.
Here is a sample passage:
The REPAYE, PAYE, and IBR plans offer an interest benefit if your monthly payment doesn't cover the full amount of interest that accrues on your loans each month. Under the three plans, the government will pay the difference between your monthly payment amount and the remaining interest that accrues on your subsidized loans for up to three consecutive years from the date you begin repaying the loans under the plan. Under the REPAYE Plan, the government will pay half the difference on your subsidized loans after this three-year period, and will pay half the difference on your unsubsidized loans during all periods.Millions of people are already confused by their student loans. Some don't know if they have private loans or federal loans, some don't know how many loans they have, some don't know how much they borrowed or what they now owe, and some people don't even know that they took out a student loan.
For the 20 million people who aren't able to make loan payments under a standard 10-year repayment plan, REPAYE is not going to offer much relief. It's just another level of bureaucracy and administrative regulations.
REPAYE is a new sign of desperation. Second, REPAYE is just another sign of the federal government's desperation about the federal student loan program. As the New York Times noted a few weeks ago, 10 million people have either defaulted on their student loans or are delinquent in their payments. About 4 million are making payments under the government's first three income-based repayment plans; and most are not making payments large enough to cover accruing interest. And a bunch more have gotten some kind of deferment from making loan payments based on economic hardship.
The government's response to all this chaos and misery is to roll out ever more generous long-term repayment plans. But this strategy hides the fact that millions of people on these plans will never pay back the principle on their loans and for all practical purposes are in default.
REPAYE is really just a program for turning college students into sharecroppers for the federal government. But the real problem with REPAYE, with PAYE and with IBR and ICR are that these plans force millions of people to make payments to the federal government for a majority of their working lives in return for the privilege of attending college. In effect, the government is turning our nation's young people into a generation of sharecroppers.
And remember, for most people, these 20- and 25-year repayment plans don't begin when students graduate from college. Often former students struggle for five years or more with their student loans before they finally sign up for a long-term repayment plan. And that's when the long-term repayment plan starts. Thus a person who graduated in 2010 and joins an income-based repayment plan this year, will not be free of student loan debt until 25 or 30 years after first enrolling in college.
President Obama, Arne Duncan, the Brookings Institution, and higher education leaders like Vassar's Catharine Hill hail long-term repayment plans as a solution to the growing student-loan crisis. But of course, these plans are not a solution at all. They're a strategy for turning Americans into indentured servants.
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| Go to college and become a sharcropper! |
| Vassar's Catharine Hill: What the kiddies need is a nice long-term repayment plan! |
