Under the current IBR program, the borrower makes payments for 20 years, and in years 16 through 20 his income-based payments average $200 a month. Under the Trump proposal, the borrower doesn’t make those payments because the debt was already forgiven. Now compare that to the low-income borrower in the first example. Under the current IBR program, the borrower makes payments of just $77 per month during years 16 through 20. Savings under the Trump proposal are therefore $77 a month for five years for that borrower due to the earlier loan forgiveness, substantially less than the borrower with more debt and a higher income who saves $200 a month for five years.
Next we combine the effects of Trump’s proposal to eliminate Subsidized Stafford loans with the changes to IBR. We have already described how a borrower who fully repays his loans (i.e., does not qualify for loan forgiveness under IBR) pays more in total due to the loss of Subsidized Stafford loans because the borrower leaves school with a larger loan balance that now includes accrued interest from the time spent in school. However, if the same borrower receives loan forgiveness under the Trump proposal, that additional debt is forgiven anyway. The Trump proposal delivers larger benefits even with the loss of Subsidized Stafford loans for borrowers who use IBR and qualify for loan forgiveness.
While the borrower leaves school with a higher loan balance under the Trump proposal, the extra interest is forgiven and then some if the borrower uses IBR: total payments under the Trump proposal are less than they are under the current IBR program with Subsidized Stafford loans
We can illustrate this using the two earlier examples. For the first example, we treat the borrower’s $15,000 loan balance as Subsidized Stafford loans. To simulate the loss of that benefit we assign him a higher initial balance when he begins repayment to reflect the additional accrued interest. Under current law the borrower starts repayment with a $15,000 balance and repays it using the current IBR program; under the Trump proposal the balance begins at $16,950 and is repaid using the Trump IBR proposal.
Despite the higher loan balance, the Trump proposal still results in lower total payments. The borrower’s total payments under the current IBR program are $15,602; under the Trump plan they are still $10,954 (see Figure 4). The amount forgiven under the Trump plan is, however, larger because the borrower starts repayment with more debt, but ultimately has it forgiven.
In fact, his payments are the same with or without the benefit of Subsidized Stafford loans
We see the same effect for the borrower with $40,000 in debt. If he had qualified for the maximum amount of Subsidized Stafford loans over a four-year enrollment period ($19,000) his balance upon entering repayment would instead be about $42,470 after losing that benefit under the Trump proposal. 28 But his total payments under the Trump proposal are still $48,498 and the higher loan balance simply results in him having more forgiven after 15 years of payments (see Figure 5).
In effect, the Trump proposal largely maintains the interest-free benefit on Subsidized Stafford loans for borrowers using IBR but shifts when the interest is forgiven. Under current law interest is forgiven immediately because it never accrues. Under the Trump proposal, it accrues but is ultimately forgiven for borrowers who use IBR and do not earn enough after they leave school to repay it. The Trump proposal also links the benefit to a student’s own income during repayment and only borrowers using IBR that have incomes low enough relative to their debt to qualify for loan forgiveness maintain access to the benefit. 29 This is different from the current approach under which eligibility for Subsidized Stafford loans is https://guaranteedinstallmentloans.com/payday-loans-wi/ based on a student’s family income when entering or while enrolled in school and the price that the school charges.
