Comparing the change in benefits for graduate students under the Trump proposal is more straightforward than for undergraduates. It is obvious that the plan reduces benefits relative to the current IBR program because it increases monthly payments by the same amount as for undergraduates, but instead of reducing the repayment period before loan forgiveness, it increases it from 20 years to 30 years.
Higher monthly payments and longer terms must result in a reduction in benefits by making it far less likely a borrower would receive loan forgiveness
We have argued that the changes lawmakers made to IBR in 2010 provided outsized benefits to graduate students relative to the original 2007 version of IBR. While it is obvious the Trump proposal rolls back those benefits, we wanted to know if it would result in a less generous program for graduate students than even the original 2007 version of IBR. That plan set payments higher than the Trump proposal (15 percent of discretionary income) but provided loan forgiveness earlier, after 25 years of payments. Therefore, we include the original 2007 version of IBR as an additional point of reference in our analysis.
To compare the three iterations of IBR plans we will use another hypothetical borrower, one with an initial income of $40,000 and debt from graduate school. We profile two different scenarios for this borrower, one with a loan balance of $50,000, which is in line with the median federal loan balance for a student who completes a graduate degree, and another with a $90,000 loan balance, which is approximately the 75th percentile for debt levels among graduate degree completers with federal debt. 30 Note that borrowers repay their undergraduate and graduate school debt as a combined balance under IBR and the figures cited above reflect a combined balance. It also includes the effect of a borrower losing Subsidized Stafford loans that make up a portion of his undergraduate debt. 31
Figure 6 shows the results for the $50,000 debt scenario. Under the current IBR program the borrower pays $75,158 over 20 years at which point there is a remaining balance of $32,011 forgiven. 32 This example helps illustrate how generous the current IBR program is for graduate students. The borrower in this example can hardly be considered low income with an initial income of $40,000 that grows at 4 percent annually, yet he still qualifies for a substantial amount of loan forgiveness. 33 His monthly payments under the original 2007 version of IBR would be https://guaranteedinstallmentloans.com/payday-loans-ga/ even higher, but he would fully repay even sooner, in 17 years, saving on interest expenses and reducing his total payments. 34
Figure 7 shows the results for the same borrower if the original debt was $90,000 and illustrates one of the most perverse aspects of the current IBR program. Despite borrowing nearly twice as much as in the first example, this borrower still pays only $75,158. The additional debt was all forgiven, totaling $122,842 in principal and interest. 35 In contrast, the Trump proposal would have him pay significantly more over 30 years, but he still has a balance forgiven. In fact, all three versions of IBR would result in loan forgiveness, but the Trump proposal is by far the least generous. 36
Policy Implications and Conclusion
The Trump administration’s student loan proposal outlined in the fiscal year 2018 budget addresses a number of problems in the current program. Most importantly, it rolls back the large subsidies that the Obama administration’s changes to IBR provide to graduate students. As this analysis shows, the Obama administration’s changes provide loan forgiveness to borrowers with graduate school debt even if they earn middle incomes, or high incomes if they have large enough debts. The case for providing a safety net to borrowers through IBR is sound, but the current IBR program goes far beyond that goal in the benefits it provides to graduate students. Graduate students already have a four-year college degree, which makes them a relatively elite group. Providing subsidies for graduate educations skews benefits to upper middle-class families while low-income families still struggle to finance an undergraduate education.