HIGHER ED: New GAO Report Highlights Importance of Income-Driven Repayment Plans to Reduce Student Debt Burden

(Washington, D.C.) – Today, Senator Patty Murray (D-WA), the top Democrat on the Health, Education, Labor, and Pensions (HELP) Committee, released a report from the Government Accountability Office (GAO) that highlights the importance of borrower relief options for those struggling to pay down their student loans. The report found that participants in income-driven repayment plans are overwhelmingly low-income, and borrowers using these plans are much less likely to default. The report also makes clear that the U.S. Department of Education and its student loan servicers should expand outreach to borrowers about ways to lower their loan payments through plans based on their income.

“While some of my Republican colleagues have attacked these important debt relief options and targeted them for short-sighted budget cuts, this report shows that not only are these plans serving the individuals who need the most help, we should be expanding efforts to help borrowers who are struggling under the crushing burden of student debt,” Murray said. “I am going to continue to fight for ways to bring down the high cost of college and reduce student debt, so more students have the chance to gain a foothold into the middle class through higher education and to help our economy grow from the middle out, not the top down.”

In April 2013, Senators Murray and Harkin requested a GAO study on income-driven repayment and Public Service Loan Forgiveness participation and awareness as part of an ongoing effort to examine the impact of more than $1.3 trillion in outstanding federal student loan debt and the growing need to provide student loan borrowers with relief. At that time, budget documents showed that just 2 to 3 percent of students were enrolled in income-driven plans, such as Income-Based Repayment (IBR) and Pay as You Earn (PAYE), and there was a lack of data on the demographics of borrowers enrolled in these plans.

A full copy of the report, titled, “Federal Student Loans: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options,” can be found here. Major takeaways of the report’s findings include:

• The income-driven plans are serving very low-income students struggling with their loan payments. Data show that 70 percent of IBR participants and 83 percent of PAYE participants earned less than $20,000 per year. Additionally, very few borrowers who are in higher income brackets are enrolled in the plans; as just 10 percent of IBR participants and 5 percent of PAYE participants had annual adjusted gross incomes greater than $40,000; and less than 2 percent of IBR participants and 1 percent of PAYE participants were earning more than $80,000.
• Alarm over loan forgiveness is exaggerated as few students will be able to claim it. If rates of public service employment are comparable among Direct Loan borrowers across repayment plans, only about 643,000 Direct Loan borrowers repaying their loans through IBR, PAYE, and ICR may be employed in public service, out of more than 130 million U.S. workers. This contrasts with other estimates of eligibility for public service that have been many times higher.
• Enrollment in income-driven repayment can reduce defaults on federal loans. Among borrowers who entered repayment from fiscal year 2010 to fiscal year 2014, less than 1 percent of IBR and PAYE participants had defaulted on their loans, compared to 14 percent of borrowers in Standard 10-year repayment. The Treasury Department, using its income tax data and Education’s student loan data, found that an estimated 70 percent of borrowers with defaulted loans met the income requirements for IBR. 
• The Department should do more outreach to borrowers about ways to lower their loan payments. Many eligible borrowers do not participate in income-driven repayment plans. The Treasury Department, using its income tax data and Education’s student loan data, estimated that just 20 percent of eligible borrowers participated in an income-driven repayment plan as of September 2012. Roughly half (51 percent) of Direct Loan borrowers were eligible for an income-driven plan.
• Servicers can also do more to help students. The Department has not established specific requirements for how servicers communicate with borrowers about the income-driven plans. Borrowers must generally actively seek information themselves, but even when GAO reviewed sample written communications that three loan servicers sent to borrowers in repayment about income-driven repayment plans, they found inconsistency in the information that was provided.