Income Driven Student Loan Repayment Plans: Lessons from Participation and Borrower Repayment Patterns

Approximately 43 million Americans have outstanding federal student loan debt, and many of these borrowers struggle to repay their loans. To make student loan repayment more manageable and decrease the risk of borrowers defaulting on their loans, the Department of Education offers some borrowers the option to enroll in income-driven repayment (IDR) plans. These plans are characterized by payments limited to a percentage of borrowers’ income and the potential forgiveness of remaining balances after a specified repayment period. Over the years, IDR plans have been revised and expanded to benefit more borrowers. Currently, there are four different IDR plans – including the most recent Saving on a Valuable Education (SAVE) plan – each with somewhat different eligibility criteria, repayment terms, and time before loan balances are forgiven. Although IDR plans have the potential to reduce the cost of college attendance and the likelihood that borrowers will default, the rules and procedures for enrolling are complex and may be difficult for some borrowers to understand, discouraging participation. Different plans with different repayment terms may have implications for the plans borrowers select and their repayment outcomes. The Department seeks to learn from the introduction of the different plans and student loan payment plan choices to inform potential refinements to IDR policies.