GAO Report: RIP High-Income IBR Deadbeats

We are alerted to the U.S. Government Accountability Office’s latest report, “Education [Department] Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options” (here). The report asks one of the questions I’ve always had of income-based repayment plans: How much are people on them earning?

The answer, as of September 2014, is squat—even less than I would’ve guessed.

(I suspect the GAO chose September because it’s the end of the fiscal year.)

GAO Report--Figure 4 (Income)

Out of 11.2 million borrowers in repayment, 13 percent were in IBR and 2 percent were in PAYE (1.46 million plus 0.22 million). If you play with the numbers right that means about 2 percent of all IBR-plus-PAYE borrowers earned more than $80,000 annually. That’s about 30,000 people. By contrast 72 percent (1.2 million) earned $20,000 or less.

Other fun facts: One, about two-thirds of all IBR/PAYE borrowers are women, so we can predict that the REPAYE plan of the future, which will essentially require debtors’ spouses to pay their debts, will be an anti-dowry. Two, within the IBR group, 13 percent were paying the equivalent of a 10-year repayment plan, and for the PAYE people, it was only 5 percent, implying that perhaps some high-income debtors are not going to require loan forgiveness anyway. Three, only one-third of IBR borrowers went to grad school; for PAYE it was only a fifth.

The low-income finding is important because there have been some articles about how IBR and the changes to it confer vastly unfair benefits to high-income deadbeats who could repay their loans if loopholes were closed. For example, earlier in September, The Wall Street Journal shrieked about studies showing how IBR and PAYE are sops to doctors and lawyers (not M.D.s and J.D.s apparently), and my personal favorite occurred last February when The Washington Post ran an op-ed by the New America Foundation’s Jason Delisle and Alexander Holt, who argued against PAYE based on a lopsided hypothetical of a law grad who made $70,000. Thanks to the GAO study, this person was not only lucky as law grads go but also totally unrepresentative of IBR/PAYE borrowers.

So going forward, I fully expect media outlets and the NAF to report on how the changes to IBR broadly favor low-income debtors, and that there aren’t so many high-income debtors taking advantage of the system.

But what did the NAF actually say about the study? It appears to be shifting its focus away from IBR deadbeats to graduate debtors on PSLF specifically. That’s not really a topic I’m interested in exploring today, but those hoping the authors would apologize for wasting so much of our public-policy mental bandwidth up until now will have to wait. The IBR deadbeat might be dead, but I’m sure they’ll resurrect it fairly soon.

In the meantime, the NAF attacks IBR by blaming students for earning too little money. I’m not kidding. Consider their closing line:

Given that borrowers in IBR and PAYE have such low incomes and high debt levels, the plans look much more like very long-term programs for borrowers, not sources of temporary relief.

What does the NAF expect? The economy is still depressed. It won’t really recover without fiscal, trade, and labor reforms. It’s not the borrowers’ faults they don’t have high-paying jobs, nor is it IBR/PAYE’s. So what’s the solution? Making them pay more? It’s unclear where the NAF will go from here, but more debt, more education, and tougher repayment plans aren’t going to work. Given that the NAF took a wide swing and missed over the IBR deadbeats, I discourage optimism.

Speaking of pessimism for college grads, the Census Bureau has updated its “Income, Poverty and Health Insurance Coverage” data for 2014. As with last year, I won’t delve too deeply into the analysis, but here are median earnings by education level for the 25-34 bracket.

Median Earnings by Education (25 - 34)

Okay, the median college grad earned $1,000 more in 2014, but it’s still way below the peak in 2000.

Meanwhile, the percent of college grads who weren’t working is still 3 points higher than in 2008, and 6 points higher than 1997. That amounts to more than half a million college grads who could be working. Moreover, it’s noisier, but there’s been an upward trend since the 1990s in professional-degree holders who don’t work.

Percent of 25-to-34-Year-Olds With Zero Earnings by Education

The best we can say is that things didn’t get worse last year, but it’s much too soon to say things are getting better.


  1. The big shock to me is that there are over one million people with student loans in repayment (so not even counting older Bachelor’s Degree-holders) who are making less than $20,000. So much for a college earnings premium.

    1. Not shocking to me. Wages have stagnated while inflation has gone unchecked. The number of jobs were always the same, but the difference is degree inflation also occurred so that job that didn’t even require an HS diploma now requires a college degree, a certification and 4 years of experience, but still pays entry level for 40 years ago.

      Not much longer until people start selling themselves into slavery to at least have a roof over their heads and meager food on the table.

  2. Oh you know, if you’ll actually publish it: fuck the United States Federal Government and the Department of Education. LOL at ‘enforcement’ of these ‘debts’. What percentage of the under-40 crowd is mired in ballooning debt courtesy of the federal government having (quite intentionally) fucked the system for the benefit of cronies in higher ed and those selling SLABS???? Any guess??? Fuck the Boomers, fuck the Silent generation still squatting in Congress, fuck the Federal Reserve for financing direct loans at NO COST to the feds since 2010. They won’t pay, neither will I.

  3. PAYE began enrolling in January 2013. Eligibility was based on having no Direct Loan or FFEL debt before 2010. Even if the economy were now booming, these are people very early in their careers, when incomes are naturally low. IBR, enacted during the Bush Administration, was implemented in July 2009 but the true growth, as others have noted, did not occur until the Obama Administration began promoting it heavily during 2012.

    DoEd’s direct loan program, just like the direct loan programs of other federal agencies (USDA, VA, HUD, DOT, etc.), is funded through borrowings from the Treasury, not from the Federal Reserve. And the interest rate is based on the 10yr T-note, not the near-zero percent overnight rate that the Federal Reserve charges its best banking customers. Compared with the typical federal direct loan program, which consists only of high-risk customers who couldn’t get a loan from a bank or credit union, DoEd’s direct loan program consists of mostly low-risk customers, so the rate that Treasury charges DoEd for borrowings is surprisingly-high. Direct student loan is basically a “community rating” insurance paradigm, where there is a range from extremely low-risk borrowers to extremely high-risk borrowers.

    1. “DoEd’s direct loan program, just like the direct loan programs of other federal agencies (USDA, VA, HUD, DOT, etc.), is funded through borrowings from the Treasury, not from the Federal Reserve.”

      Oh really? Who was buying 70%-100% of new issue of US Treasuries from 2010 until “taper” in Q4 2014? HINT: THE FEDERAL RESERVE, or have you never heard of QE???

      The Federal Reserve owns the bonds that funded my Direct, federal student loans. And when the Federal Reserve owns a US sovereign bond, they remit the interest payments made by the gov’t back to the US Treasury.

      So…uh, nice try. And if I were to pay (reminder: I won’t pay) those payments would be placed in a general fund for the US Congress to spend today, as it has. They aren’t running surpluses. As respects me and my federal student loan debt, it’s quite a moot point whether I pay or do not pay, because the bond debt that financed my loans sits out there owning…like all US sovereign bond debt has for about 50 years – you know, we just revolve it when it comes due…

      For me, direct, federal student loans were a screw job from “go.” I figured it out, and it affects my perspective on repayment. Others have too. Peddle your lies elsewhere.

    2. So, um, just to clarify. The Fed R owns the bonds that funded my loans, and that was a 0% interest loan to the Dept. of Ed. Every dime I pay is “profit,” as it were, to the US federal government…

  4. I heard a recent ad for life insurance. It asked, “what if you died?” Would your family be put out of their home without you?” The truth is, even after practicing law for 25 years, my family would be much better off without me. The Student Loan payment would cease, bar dues and mal-practice would be eliminated. It would save my family thousands if I was dead. Also, my shitty bronze plan is 3 bills a month. My wife has her coverage from her job. Spouses aren’t covered. My Schedule “C” has not gone above 37K since ’07, no matter how hard I work. I am just dead wood as a lawyer.

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