Income-Contingent Student Loan Repayment

The US approach to student loans changed fundamentally a decade ago in 2010. The Congressional Budget Office describes how in "Income-Driven Repayment Plans for Student Loans: Budgetary Costs and Policy Options" (February 2020).

Between 1965 and 2010, most federal student loans were issued by private lending institutions and guaranteed by the government, and most student loan borrowers made fixed monthly payments over a set period—typically 10 years. Since 2010, however, all federal student loans have been issued directly by the federal government, and borrowers have begun repaying a large and growing fraction of those loans through income-driven repayment plans.
Under the most popular income-driven plans, borrowers’ payments are 10 or 15 percent of their discretionary income, which is typically defined as income above 150 percent of the federal poverty guideline. Furthermore, most plans cap monthly payments at the amount a borrower would have paid under a 10-year fixed-payment plan. ... Borrowers who have not paid off their loans by the end of the repayment period—typically 20 or 25 years—have the outstanding balance forgiven. (Qualifying borrowers may receive forgiveness in as little as 10 years under the Public Service Loan Forgiveness, or PSLF, program.)

There's a strong positive case for income-contingent loans. Because they spread out the payments over time and link them to income, the annual burden of those payments is less likely to overwhelm borrowers. Thus, students from families with limited financial resources may be more willing to use such loans to attend college, and income-contingent loans are less likely to lead to default. 

But there are tradeoffs, too. Many students presumably have some information, based on their abilities and career plans, about whether their future career is likely to be higher- or lower-paid--or whether they may be planning to leave the labor force for certain periods of time (perhaps to become a parent). With an income-contingent loan, a lower-paid career means lower annual payments and the possibility that a lot of the debt will be forgiven by 25 years after graduation when many former students will presumably be in their late 40s and still have a number of prime earning years remaining in their careers. Similarly, students who are borrowing especially large sums of money is more likely to benefit from having any remaining debts forgiven after 25 years. Thus, CBO writes:

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