Julia Barnard, researcher at the Center for Responsible Lending
IDR plans can reduce a person’s monthly federal student loan payment to a more affordable amount based on that person’s income and family size. The plans can be a lifeline for many borrowers. But making sure the plans are more equitable gets complicated quickly.
“This week’s rulemaking talks on IDR make it clear that many negotiators are disappointed with the scale of the department’s proposal, especially the number of borrowers who would be covered,” said Dr. Kyle Southern, director of accountability at The Institute for College Access and Success (TICAS), a nonprofit research and advocacy organization that focuses on higher education equity.
Reduced payments with IDR are based off of a formula that determines a person’s discretionary income, though what goes into that formula and what discretionary income actually means for everyday borrowers has been a sticking point. Depending on the type of IDR plan, a borrower’s payments can be 10% to 20% of that discretionary income.
“We know that 10% of discretionary income is quite high for many families,” said Julia Barnard, a researcher at the Center for Responsible Lending, a nonprofit organization that produces research and policy advocacy to protect consumers from predatory lending.
On the campaign trail, President Biden proposed lowering that to 5% of a person's discretionary income, which could reduce a monthly loan payment by 50% or more for borrowers. That has not happened yet, however.
Then there’s the problem of an IDR plan’s timeline, said Barnard. A plan can last 20 to 25 years before federal student loan debt is forgiven. Several negotiators in rulemaking as well as advocates like Barnard have called on that timeline to be meaningfully shortened, which has also not happened so far during rulemaking.
