Grad Students and Income-Based Repayment

Last fall, Jason Delisle and Alex Holt of the New America Foundation wrote on how the Obama administration’s new Income-Based Repayment (IBR) program might benefit high-earners with graduate or professional degrees:

The New America Foundation developed a calculator to examine how the pending changes to IBR will affect different types of borrowers. We analyzed hundreds of scenarios for different borrower profiles. But contrary to benefiting low-income borrowers, the pending changes to IBR will actually provide generous benefits to borrowers with higher federal loan balances – those with graduate or professional degrees. A borrower with an MBA or a law degree can easily have a six-figure loan balance forgiven, even if his income exceeds $100,000 for much of his repayment term.

This week, they provided a follow-up:

Using the New America Foundation’s IBR calculator, we found that once a borrower takes on $65,000 in debt, he bears none of the incremental cost of borrowing an additional dollar under the new IBR, even if he goes on to earn over $100,000 for most of his repayment term. The extra debt will be forgiven. Pair that with the average borrowing figures released by the Congressional Budget Office, and throw in the overrepresentation of Grad PLUS borrowers in the old IBR, and our warnings hardly look like an exaggeration.

Delisle and Holt suggest that the benefits of these generous subsidies won’t be captured primarily by the taxpaying public:

Working together, Grad PLUS and the new IBR are set to provide massive subsidies to graduate students, graduate schools, and employers who no longer need to pay salaries that justify the debt incurred to obtain a graduate or professional education. Should the Grad PLUS windfall under new IBR go unnoticed and unused as some skeptics claim, it will be the first time in history that the federal government offers $41,000 or $100,000 checks to the most educated segment of society and nobody shows up to claim them.

One suspects that higher education incumbents have good reason not to draw attention to how the new IBR terms and Grad PLUS interact.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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