The Case for More Debt: Expanding College Affordability by Expanding Income-Driven Repayment

One of the most important—but least discussed—legislative and regulatory accomplishments of the Obama administration was the reform and expansion of income-driven repayment (“IDR”) for federal student loans. By 2016, anyone with a federal student loan—old or new—could choose to cap their monthly student loan payments to 10 percent of their discretionary income (after a large exemption) and have any unpaid balances forgiven after a minimum of ten, twenty, or twenty-five years of repayment, depending on the plan. IDR has the potential to effect a massive change in how the United States pays for higher education. At its core, the promise of IDR is that higher education will always be affordable, no matter what a person’s income is after the person leaves school.

However, Monthly payment as a percentage of income, and ultimate forgiveness after the full repayment period, apply only to money borrowed from (or guaranteed by) the federal government. But it turns out that most undergraduates can’t actually borrow that much at all—only about half the average net cost of a public university, and a quarter of the cost for a private university. Federal law imposes hard caps on the amount it will lend to undergraduates—caps that have barely budged since 1993—even as tuitions continue to rise faster than inflation.