White House’s Student Loan Repayment Plan Needs Fixing
A pause that covered 45 million borrowers and $1.6 trillion in loans will soon end. But first, the government must address the flaws in its best idea for easing the transition.
Loan payments will soon start up again.
Photographer: Paul Morigi/Getty Images
US Secretary of Education Miguel Cardona recently confirmed that student loan repayments would begin again later in 2023, delivering what is likely to be a severe financial shock to borrowers who have not had to make payments for three years. This puts greater urgency on lawmakers to fix the flaws in the best idea for easing the transition: the Income-Driven Repayment plan.
The pause covered 43 million borrowers and $1.6 trillion in loans and came at a cost to the government of $5 billion per month, or around $200 billion in total. Although low- and moderate-income borrowers would benefit from the plan and its lower monthly payments, the problem is that most don’t have an income-based loan or even know they exist as an option. A look at late-payment rates prior to the pandemic shows what a “return to normal” could look like and how much there is to lose if the restart is managed poorly. Any difficulties in the transition will hit some groups harder, such as Black, Hispanic and Native American borrowers, first-generation college students and those who attended private for-profit schools.