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October 31, 2012

Pulling Yourself Up by Your Bootstraps is No Windfall:  IBR Makes the American Dream Possible

A new report examines Income-Based Repayment (IBR) and the effect of pending changes to the program and analyzes how IBR affects borrowers over time as their incomes change. 

The New America Foundation released “Safety Net or Windfall:  Examining Changes to Income-Based Repayment for Federal Student Loans” by Jason Delisle and Alex Holt, arguing that changes to Income-Based Repayment (IBR) should be better targeted towards low-income borrowers rather than “high-income borrowers with graduate and professional degrees.” 

The analysis in the report clearly demonstrates what advocates have long known is a weakness in the IBR program—the lowest-income student loan borrowers need more and different help.

But the wealthy certainly do not benefit the most from Income-Based Repayment.  Wealthy students and families have money to pay for education, do not need to rely on student loans, and neither need nor will receive many benefits from Income-Based Repayment. 

Debt-Based System of Access to Higher Education

We have a debt-based system of access to higher education.  Unless or until that changes, student loans enable middle- and lower-income students and families to pay for the advanced degrees required to work in many higher-income professions.  Middle- and lower-income students and families must borrow substantial amounts or decide not to pursue advanced graduate and professional degrees.

Income-Based Repayment enables lower- and middle- income students to borrow and successfully repay high student loan balances, and borrowing and repaying a high student loan balance is the path from a lower- or middle-income family to high-income employment.  The person who benefits the most from IBR comes from a family of modest means, borrows a lot to earn advanced degrees, and makes payments based on income every month for many years.  The more that student loan borrower earns, the more he or she will pay. 

Control Tuition, But Not on the Backs of Borrowers

Our debt-based system of access to higher education likely helped create the environment in which schools raise tuition with impunity.  The New America Foundation recommends that policy makers “[m]itigate the incentives [IBR] provides for graduate and professional schools to increase tuition and notes that “[t]he federal student loan program allows graduate students to borrow unlimited amounts to pay for the cost of their education.”  

In fact, student loan borrowing is not unlimited; student loan borrowing is limited by the cost of attendance.  Students cannot and do not borrow more than the amount their school determines it costs to attend.  It is the cost of attendance that is seemingly unlimited, and it is the students least able to pay who borrow the most.

More effort must be made to control the skyrocketing cost of higher education.  Although the availability of IBR likely mitigates pressure on schools to control costs, restricting IBR places the burden where it does not belong--on today’s indebted graduates.  Student loan borrowers need IBR and other student debt relief programs now.


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