The student debt relief proposal President Obama rolled out this morning isn’t exactly new. As I mentioned earlier today, it’s more of an adaptation: It lowers some existing caps on how much student borrowers have to pay back on their loans each year. Those caps are pegged to income, hence the name for the policy: Income-based repayment. Or, in education policy terms, IBR.
The Obama administration didn’t create IBR; instead, it inherited the policy from its predecessor. President George W. Bush signed the College Cost Reduction and Access Act in September 2007. The law allowed, among other things, for student borrowers to cap loan payments at 15 percent of income and for loan forgiveness after 25 years of payments. All those changes came into effect in July 2009.
Today’s proposal uses the same structure, but moves the goalposts: the cap for loan repayments gets dropped to 10 percent of income and loan forgiveness gets moved up to after 20 years of payments.
The nonprofit Project on Student Debt for years now has been an IBR advocate. It drafted much of the policy proposal that Bush signed in 2007 and that the Obama administration has now strengthened. I spoke this afternoon with the Project on Student Debt’s president, Lauren Asher, about the history of income-based repayment, what these new changes mean and why the new publicity push matters for student borrows. What follows is a transcript lightly edited for content and length:
Sarah Kliff: Tell me about the history of income-based loan repayment. How did the proposal come to be law?
Lauren Asher: We’ve been working on these issues since 2005. The idea of income-based repayment evolved out of an analysis we did, that looked at payment options for student loans. Students were really getting mixed messages from borrowers: Sometimes you’re encouraged to borrow because it’s a good investment; but on the other hand you’re warned not to borrow too much.
We came up with this proposal, which was a sliding scale that took into consideration how much the borrower is earning. We originally thought of it as regulatory, but then legislators got involved. Our original recommendation said that the loan forgiveness should be at 20 years.
SK: But it got set at 25 years. How did that happen?
LA: The way the law got written, the education secretary had the authority to set it up to 25 years, so that’s where it’s currently set.
SK: What does today’s announcement mean for the program? How much more expansive does it get?
LA: One of the most important things about this announcement is the administration is committing to help more borrowers find out about IBR. There’s an estimated half million enrolled right now, and millions more could benefit from the program.
There really needs to be more public outreach and education. So we’re really thrilled that the department is going to do that. If you talk to people at the Occupy Wall Street protests, or in your everyday life, you find they owe more than they ever have before.
SK: That’s interesting that you mention the publicity around the program as the key change here. How much do you think it matters that the administration is also lowering the caps for loan payments in the IBR program?
LA: We’re especially excited about the commitment to raise awareness about IBR. In a previous life I’ve worked on other policy issues. And when something is a new policy, it can take awhile to penetrate public consciousness. With student debt, there’s no time to waste.
That being said, the changes to payment will make the program even more affordable for current students. IBR is a light at the end of the tunnel, and the tunnel will be shorter and brighter with these changes.