Saturday, February 1, 2020

Urban Institute: Thirty percent of student debtors are enrolled in Income-driven repayment plans

The federal student-loan program is in crisis, but it is hard to figure just how big the problem is.

The Department of Education annually reports the percentage of student borrowers who default three years after beginning repayment. That figure--about 10 percent in recent years--is concerning but not alarming.

Non-governmental studies (Pew Foundation and Brookings Institution) have found that the 5-year default rate for recent cohorts is double the 3-year rate: about 25 percent.  In other words, 1 out 4 student-loan debtors default on their loans within five years of beginning repayment.  Now that is alarming.

But the situation is a lot more dire than that.  A recent report from the Urban Institute (authored by Kristin Blagg, Laurie Goodman, and Kelia Washington) noted that 8 million student-loan debtors are in income-driven repayment plans (IDRs).  According to this report, that amounts to about 30 percent of all college borrowers.

That's really scary because almost no one among those IDR participants is paying down the principal on his or her debt.  Instead, just about all of these 8 million people are making very small monthly payments based on their income--not the amount that they borrowed.

It is always dicey to compare one student-loan analysis to another because we are always measuring apples and oranges. Some of the people counted as 5-year defaulters in one study may be the same people identified as IDR payers in another. (And the Brookings and Pew studies examined cohorts, not the entire student-debtor population.)

Nevertheless, it is clear that when the 5-year defaulters and the IDR participants are considered together, about half of all student-loan borrowers are not paying off their loans.  In my opinion, that's a meltdown.

You may love Senator Bernie Sanders and Senator Elizabeth Warren or you may hate them, but both deserve credit for putting a serious proposal on the table to address the student-loan crisis.  Forgiving all student debt (Bernie's plan) or $50,000 of a borrower's debt (Elizabeth Warren's plan) are reasonable ideas.

One thing seems clear (at least to me): The student-loan program is out of control and it is kicking millions of people out of the middle class. The program hinders overburdened debtors from buying homes, having children, getting married, and saving for retirement.

And who benefits? Our corpulent, incompetently run colleges and universities whose leaders say the universities need more federal money.

Greedy colleges: "Feed me, Seymour!"


  1. Scary to think that the most popular proposals all center around auto-enrolling everyone in IDRs.

    This doesn’t benefit the DoEd or the taxpayers who will eat big losses at the end of 20-25 years when auto-discharges kick in. It doesn’t benefit borrowers who will have no retirements and fewer kids to help support them in old age because they couldn’t afford to have kids. Many of these people may try to live on smaller incomes to avoid repayment. It doesn’t benefit local businesses who are crushed by money that goes into debt servicing.

    The only ones who stand to benefit are U.S. Attorneys and regulators who get paid to block discharged and servicers who get paid for servicing imaginary debts that never get paid off. That and university marketing departments who get big chunks of borrowed money to convince people to borrow for overpriced tuition that is overpriced to fund administrators, marketing departments, luxury dorms that students don’t necessarily want, luxury apartment developers around universities, and unprofitable sports programs that sap endowments under flawed research that falsely claims they help with retention even as it’s clear that they sabotage the academic performance and missions of universities.

    In turn, debtors are being told they’ll need a Master’s Degree to work at McDonald’s only to find that the only job they can get is a job at McDonald’s. Something that actually requires a lot of hard work that a lot of smart, well-meaning students simply don’t have the disposition or the basic skills to do competitively.

  2. Thanks for writing, Patrick. Your comments are right on the money.