Publication

PPI Comment on proposed Dept. of Ed rule: “Improving Income-Driven Repayment for the William D. Ford Federal Direct Loan Program”

By: Ben Ritz / Nick Buffie / Taylor Maag / Paul Weinstein Jr. / 02.13.2023
Download PDF

PPI has long supported the expansion and reform of income-driven repayment programs that directly tie debt cancellation to a borrower’s ability to pay. Considering the high cost of a college education today, we believe policymakers ought to target relief to borrowers who are stuck with the debt of pursuing a degree without being able to reap the financial benefits of attaining one.

Accordingly, PPI was encouraged when the administration announced efforts to simplify and expand income-driven repayments. The current proposal should be commended for streamlining the array of repayment options, many of which have complicated terms and lengthy processes that deter enrollment by borrowers who would benefit, while also automatically enrolling eligible borrowers in an IDR plan. Additionally, the rule would offer new benefits for low-income borrowers with high loan balances. PPI supports efforts to make IDR more accessible, help distressed borrowers, and ensure affluent college graduates still pay their fair share for the benefits their degrees confer.

However, we are concerned that the proposed expansion is overly aggressive. Below is an analysis we submitted as part of the public comment period that shows the proposed rule will likely turn income-driven repayment from a safety net for vulnerable populations into a broad-based subsidy that Congress never intended. PPI estimates that a typical college-educated worker enrolled in the reformed program would only pay 2.5% of their income in student loan payments over 20 years, after which point the remaining balance would be forgiven. As a result, they would only end up paying three-fifths of the amount they initially borrowed, and not a dollar of interest.

With such generous terms for the average borrower, the new proposal is likely to become the new normal for most college students. Even families that can afford to save and pay for school with cash are likely to borrow money with such a generous subsidy for the vast majority of students. We are not alone in our findings: the Penn Wharton Budget Model and Adam Looney of the Brookings Institution both estimate that over 70% of college attendees would enroll in the revamped program. Whether it is through higher future taxes or inflation, workers who don’t have the opportunity to benefit from a college education will be stuck footing the bill for those who do.

By providing such a large and broad-based subsidy, the proposed changes would also encourage colleges and universities to avoid making the tough choices needed to contain costs, and would enable them to keep hiking tuition and fees faster than the growth in incomes and other prices. For these reasons, independent estimates have found that the cost increase associated with this proposal is likely to be between three and ten times as much as the $128 billion estimated by the Department of Education. It would also

Our comment urges the Department to delay implementation of this rule until it has conducted a more thorough estimate of the proposal’s cost to taxpayers and the impact it would have on the higher education financing system. It is our hope that the proposal is refined to be more carefully targeted toward those borrowers who leave college with low incomes and high debts. Insofar as higher education suffers from structural problems such as runaway tuition hikes, those are issues for Congress to address. Overly aggressive expansion of income-driven repayment is not a solution for structural financing problems, and as we have demonstrated, is likely to make them worse.

Read the comment on the proposed Department of Education rule.