World and Nation

Student debt relief changes to aid well-off most, study says

With nearly 1 in 6 student loan borrowers in default, the federal government is making changes to its income-based repayment plan to help borrowers with relatively high debt and low incomes keep up with their payments.

But a report that will be released Tuesday by the New America Foundation, a nonprofit and nonpartisan policy institute, says the changes ultimately will provide only marginal help for low-income borrowers who are at the greatest risk of default.

Rather, the changes would provide big benefits to middle- and high-income borrowers, particularly for those seeking a graduate degree, the authors found. The report says that at least one financial planning company is telling law school students that the changes could allow them to write off $100,000 in student debt.

“If left unchanged, the program is set to provide huge financial windfalls to people who, far from being in need, are among the most financially well-off graduates in today’s job market,” the report says.

Asked about the report, Justin Hamilton, a spokesman for the Education Department, said in a statement that income-based repayment “isn’t necessarily right for everyone, but it can be an incredibly helpful resource for people struggling to manage their student loan debt.”

Because payments are based on a percentage of income, borrowers with low incomes can conceivably pay nothing each month and still remain current on their loans.

1 Comment
Anonymous over 11 years ago

You hook us in with a controversial headline, and then cut the part of the article that actually describes that issue.

If you find the original Times article, "Well-Off Will Benefit Most From Change to Student Debt Relief Plan, Study Says" from today, you'll see the crucial missing explanation:

These changes "will reduce monthly payments from 15 percent of discretionary income to 10 percent and forgive outstanding balances after 20 years of payments, instead of 25 years."

So 5 percent of a small income is less than 5 percent of a big income.