Republican presidential candidate Donald Trump announced his plans to lower caps for loan income-driven repayment plans at an Oct. 13 rally.
Trump said he plans to combat the current U.S. student loan debt, which nears $1.3 trillion, by capping current income-driven repayment plans for student loans at 12.5 percent of a person’s income per month and forgive debt after 15 years of income-based payment if there are still payments left to be paid.
Income-driven repayment plans were designed to make student loan debt more manageable by reducing monthly payment amounts, according to the Federal Student Aid website. There are currently four IDR plans available for students to sign up for and the income caps range from 10-15 percent. The repayment periods range from 20-25 years.
“I think [IDR plans are] a very equitable system the way it’s laid out currently,” Robert Guerra, College Republicans president, said. “Trump’s plan adapts [the current plan] and gives a few more people breaks.”
Democratic candidate Hillary Clinton’s platform also addresses IDR plans. She wants to cap payments at 10 percent over 20 years.
Neither candidates have addressed the cost of their plans, including the cost the federal government would accumulate from forgiven debts and lost interest on those debts.
According to economics professor Richard Murphy, IDR plans simplify the process of paying back loans, but changing the caps will only have a marginal impact on the economy.
“The way [IDRs] are set up today means there are still many hurdles and making minor adjustments to the terms will make little meaningful difference to the life of graduates,” Murphy said in an email. “Not many students use these plans. Instead the standard American plan has graduates paying back a fixed amount each month regardless of their economic circumstance, which leads to a high level of default.”
Murphy said in some countries with IDR plans, students with debt are automatically enrolled in the program until the debt is paid off. In the US, graduates have to complete an 10-page application, which can take months to be approved. Students also have to reapply every year.
Extending, rather than lowering, the [IDR] period will increase the chances that the loan is repaid without graduates defaulting, according to Murphy.
“International experts on student finance agree that paying back loans over shorter periods is not sensible policy,” Murphy said in an email. “A core principle of finance is that the repayment period should align with the use of the asset. We pay back loans for cars over a shorter period than we do for houses for this reason. For education, the financial returns are gained over a life time and so one would think about extending the repayment period, with a smaller payments each month.”
Education administration professor Lauren Schudde, education administration professor, said while both Clinton and Trump’s plans keep IDR plans, that wouldn’t top tuition from rising.
“At some point, this country is going to have to make bigger investments in higher education at both the federal and state level.” Schudde said in an email.
“I hope to see a future where public colleges are actually free, but I know that the idea seems radical or unreasonable to people who think of a college education as a private good that only offers returns to the individual student. I see it as a public good, educating citizens who can then give back to society and who are less likely to need the public safety net. It’s worth the investment.”
