One of the most widely-touted programs to prevent student debtors from falling into financial hardship is the government’s Income-Based Repayment (IBR) program. One of the accomplishments touted by the Obama administration is changing the program to benefit debtors even more. However, according to the New York Times, those changes have recently come under scrutiny by the New America Foundation, a non-partisan think tank, which concludes that the administration’s changes help high-income debtors more than low-income ones. Here are several key findings:
The changes do little to benefit low-income borrowers, which the study’s authors define as those earning less than $26,000. Monthly payments will only be reduced by about $5 to $20, though many debtors will be paying nothing.
Middle-income borrowers ($25,000 to $63,000 per year) will save $75 per month, but the benefits are much greater for debtors with more than $25,000 in student loan debt.
For high-income debtors, the benefits of the changes to the law will be substantial. Currently, most will pay off their debts within 25 years, but once the changes go into effect, they will receive substantial benefits due to taking more deductions on their taxes and having their loans canceled after 20 years rather than 25 years, though they’ll have to pay income tax on the forgiven amount.
Given that unpaid interest on IBR will be capitalized onto principal once borrowers can pay their debts on a 10-year repayment plan, many borrowers will be better off forgoing IBR in favor of 25-year repayment plans.
The New America Foundation recommends the government rescind some of the changes for higher-income borrowers and extending the loan forgiveness benefit to 25 years for debtors with $40,000 or more of student loan debt.
Of course, a simpler solution would be restoring bankruptcy protections to student debtors, which makes it appear that the New America Foundation is making a mountain out of a molehill. There aren’t that many high-income debtors out there who have a lot of student loan debt, and basing part of the report on advertising from a for-profit law school isn’t persuasive because it isn’t indicative of the employability of law graduates. That aside, debtors who face serious repayment obstacles on federal student loans, except Parent PLUS loans, will benefit more from IBR than defaulting on their loans. Consider talking to a Las Vegas bankruptcy lawyer to find out your options for dealing with your debt.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.