Skip to content
Subscriber Only

Obama's New 'Pay as You Earn' Plan a Windfall for MBAs

Obama's New 'Pay as You Earn' Plan a Windfall for MBAs
Photograph by Corey Oerinna/Zuma Press/Corbis

The federal government’s Income-Based Repayment (IBR) program for federal student loans has been touted as a way for struggling borrowers to make affordable monthly loan payments based on their earnings. Yet the program, around since 2007, has not been popular with students. Despite rising levels of student debt, only 1.1 million borrowers are enrolled in the current program. The Obama administration is hoping that will soon change with its redesigned program, also known as the “Pay as You Earn” plan. It will reduce the cap on loan payments from 15 percent of the borrower’s income to 10 percent, and accelerate loan forgiveness from 25 years to 20 years. On Nov. 1, the Department of Education announced that the new IBR plan is now finalized, meaning students will be able to start enrolling in the new plan shortly.

The program’s new terms have been popular with student loan advocates, but there may be some significant flaws with its new design, suggests Jason Delisle, co-author of a new report on the changes. Delisle, who heads the Federal Education Budget Project at the New America Foundation, a nonpartisan public policy institute in Washington, D.C., helped develop a calculator that took a close look at how the changes to IBR will impact students, including those enrolled in MBA programs. Based on his findings, he’s recommended that the Department of Education make significant changes to the program so that benefits for students are more evenly distributed.