The federal government should automatically enroll all borrowers in an income-based repayment plan and deduct their payments through employer withholdings, according to a new report by a consortium of five student-aid advocacy and research groups.
The report, produced for the second round of the Bill & Melinda Gates Foundation’s “Reimagining Aid Design and Delivery” project, is the latest to argue for “universal IBR” as an alternative to the current menu of nine repayment options. Half of the 16 grantees in the first round of the Gates project suggested some variation on the idea.
The new report, by the advocacy group Young Invincibles and four other organizations, fleshes out those first-round proposals, offering details on how such a program could be structured and administered.
While the groups differ on some of the details, they agree that the system should be simple and fiscally sustainable, while minimizing incentives for students to overborrow or colleges to overcharge.
Under the most generous income-based repayment program available now, Pay as You Earn, borrowers pay 10 percent of their discretionary income each month, and monthly payments are capped at the standard 10-year repayment amount. Any remaining loan balances are forgiven after 20 years (10 for borrowers in public service).
But while student debt levels are at an all-time high, enrollment in income-based repayment plans has remained low, at roughly 11 percent of borrowers.
Proponents of universal IBR attribute that pattern to the complexity of the current income-based programs and argue that automatic enrollment would ensure that all borrowers benefited, “not just those who are financially savvy and persistent enough to discover and navigate the programs,” as the report puts it. They add that automatic IBR would virtually eliminate delinquencies and defaults, which have been on the rise in recent years.
Some Risks
Yet automatic enrollment would also carry some risks, as the New America Foundation has shown. Enrolling all borrowers in the existing Pay as You Earn program would provide loan forgiveness to many borrowers who are capable of repaying their debt, and might encourage graduate schools to raise tuition, adding to their students’ debt loads and burdening taxpayers.
To reduce those risks, the authors recommend limiting benefits to borrowers with high incomes and eliminating the current payment cap. Some of the groups also suggest stricter loan limits for graduate programs, though there was no consensus on that proposal.
The report notes that universal IBR could render cohort default rates “nearly obsolete” as an arbiter of institutional quality, and suggests adding a “repayment progress measure” based on patterns of progress on loan repayment for cohorts of students. As with existing default rates, institutions that performed poorly on the measure would become ineligible to award federal student aid.
The report also explores other accountability metrics the Education Department could use in evaluating colleges, including net price, completion rates, loan-repayment rates, and percentage of Pell Grant recipients. The Obama administration has suggested similar metrics for use in its controversial college-ratings system, due out this spring.
Finally, the report examines the pros and cons of holding colleges liable for some portion of their students’ debt (a concept known as “risk sharing”), and of limiting student borrowing at underperforming institutions.
The report will be released on Thursday at a forum sponsored by the five grantees that produced it: Young Invincibles, the National Association of Student Financial Aid Administrators, the Institute for Higher Education Policy, the Committee for Economic Development, and HCM Strategists.
