Income-Driven Repayment Plans for Student Loans: Working Paper 2020-02
Working Paper
Learn how CBO projects the budgetary cost of student loans repaid through income-driven plans. This working paper provides information on the characteristics of borrowers in those plans and on the methods used to project borrowers’ earnings, repayment, and resulting forgiveness.
By Nadia Karamcheva (CBO), Jeffrey Perry (CBO), and Constantine Yannelis (University of Chicago Booth School of Business)
In February 2020, CBO released a report on the budgetary effects of student loans repaid through income-driven plans. This paper provides additional information on the analysis the agency conducted on the characteristics of borrowers in those plans and the methods the agency used to project borrowers’ earnings, repayment, and resulting forgiveness. The results show that income-driven repayment plans are heavily used by borrowers with large balances and low earnings. The typical borrower in income-driven repayment is negatively amortizing, and substantial forgiveness is projected for low-income borrowers in such plans. Overall, increased take-up of income-driven repayment and the negative amortization in those plans explain much of the decline in student loan repayment rates between 2008 and 2017.
