Income-Driven Repayment Plans Fail Black Borrowers

Approximately 43 million Americans collectively owe $1.6 trillion in federal student loan debt, but this debt is not borne…

November 16, 2022 by Victoria Jackson, Jalil B. Mustaffa, Ph.D.

Approximately 43 million Americans collectively owe $1.6 trillion in federal student loan debt, but this debt is not borne equally by all. Black borrowers are amongst those most negatively impacted by student loans due to the ongoing effects of systemic racism, the inequitable distribution of wealth, a stratified labor marker, and rising college costs.

Federal income-driven repayment (IDR) plans are designed to make monthly student loan payments manageable and more affordable for borrowers. Unfortunately, they are often ineffective at reducing a borrower’s debt burden over time.

Drawing on qualitative data from our National Black Student Debt Study, this brief dives into how existing IDR plans are failing Black borrowers. A higher education should be the key to a better future, but for many Black borrowers who participated in the study, student loans are a lifetime debt sentence.

While the Biden Administration has taken some strong steps in the right direction, they do not address the underlying issue of college affordability or help future students. Ed Trust has 3 broad actions that the Biden administration and Congress should take to end the student debt crisis and make college affordable.

Download the Full Brief

Recommendations

1. More than 80% of the participants in the “Jim Crow Debt” study think the federal government should cancel all student debt. The Education Trust supports canceling at least $50,000 of federal student debt and opposes limiting eligibility for cancellation by income, loan type, or degree type (e.g., undergraduate vs. graduate degree).

2. In addition to total broad-based debt cancellation a new IDR plan that includes the following features should be created in place of existing plans:

Raises protected income threshold to 300% or more of the federal poverty line, depending on a borrower’s family size
Caps monthly payments at 5% or less of a borrower’s discretionary income
Has a time to cancellation of 10 years or less, regardless of original loan balance, and shortens time to cancellation for Public Service Loan Forgiveness to eight years.
Cancels a portion of the outstanding balance after every 12 months of payments, with full cancellation of the outstanding balance after 10 years or 120 monthly payments.
Allows borrowers to request a lower IDR payment in times of economic hardship (e.g., due to major medical expenses or debt, the need to pay for child care, elder care, or other dependent care)
Subsidizes interest for borrowers whose monthly payments do not cover all accrued interest and does not add interest to borrower’s original loan balance during repayment
Is available to undergraduate and graduate borrowers with the same terms
Is available to borrowers with Parent PLUS loans (without the need to consolidate)
Is available to borrowers of all income levels
Makes student debt cancellation via IDR tax-exempt

3. To make college more affordable, Congress should double the Pell Grant and create federal-state partnerships to make public college debt-free.

UPDATE: This brief was published contemporaneously with news that the Biden-Harris administration’s student debt cancellation program has been halted by federal judges. In light of this, The Education Trust supports an extension of the current payment pause for all federal borrowers for the duration of these legal actions. In the interim, we also encourage the U.S. Department of Education to explore all existing pathways to ensure borrowers receive cancellation, including the ongoing income-based repayment rulemaking process.