To Reduce Loan Defaults, Automate Payroll Withholding, Report Says

Report: “The Case for Payroll Withholding”

Organizations: New America Foundation, Young Invincibles, National Association of Student Financial Aid Administrators

Summary: With student-loan default rates rising, a growing number of policy makers, think tanks, and advocacy groups are calling for automatically enrolling some or all borrowers in income-based repayment, or IBR. In this report, a product of the third round of the Reimagining Aid Design and Delivery project, financed by the Bill & Melinda Gates Foundation, the authors compare four distinct, and progressively more “automated,” ways of expanding the program.

Bottom Line: Automated IBR with employer withholding of payments would simplify the student-loan repayment system and reduce the risk of missed payments. Still, automatically enrolling borrowers in IBR is difficult, and any haphazard approach could make the federal loan-repayment system worse. In the coming months, the authors will release another report examining the “barriers and challenges” to adopting automatic IBR with employer withholding.