WSJ Has No Idea Who Benefits From IBR/PAYE/REPAYE/ETC

A hypothetical: Jill and Jack live in the same town. Jill has many healthy habits but is a nurse who spends time around infected people, Jack less so. The town is hit with a case of spectrox toxaemia, a dangerous disease. The government offers to immunize people. Jill decides to be immunized; Jack does not. Jill does not get sick; Jack does. So, epidemiologists, did Jill not contract spectrox toxaemia because she was immunized or because of her healthy habits (or luck)?

If you’re The Wall Street Journal, the answer is her habits. Most of us would believe otherwise, given how dangerous spectrox toxaemia is and Jill’s contact with its victims.

Likewise, this line of reasoning animates the WSJ’s opinion of the government’s income-sensitive repayment programs for student debtors, which it claims benefit higher-debt people with better credit scores than lower-debt people who don’t. It’s unintuitive, if you’re the WSJ apparently, but it makes more sense to those of us familiar with the student debt system.

Here’s how it works: People who take out lots of debt might not in fact have the incomes to repay them, so they choose an income-sensitive repayment because the alternative is … Default! Thus, looking at how much they borrow is less important than looking at how much they’re paid.

Last year, in fact, the Government Accountability Office explored this topic and found that most people in income-sensitive repayment programs were earning less than $20,000 annually. So the Jills aren’t so different from the Jacks after all.

Sure, if there were no IBRs/PAYEs/REPAYEs/ETCs, then these Jills with good borrowing habits would be more likely to take deferments and forbearances, but their debts would still not be repaid. That’s because debts that can’t be repaid will not be repaid, no matter what someone’s credit score or how much they borrowed. What matters is what they earn, and college graduates don’t earn much these days.

And if you think the Jills have too much debt, then the problem isn’t IBR/ICR/REPAYE/ETC, it’s that the government lends too much money to people for degrees they don’t need.


  1. When I started law school forty years ago it was possible to distinguish on sight the people who were there with a plan to make significant amounts of money practicing law and the ones who were just hoping to evade repayment of undergraduate debt and have a decent chance at obtaining some kind of job. My guess is that more than half of my law school class consisted of students who were enrolled in law school because they lacked the aptitude for medicine, engineering, or a career in post-secondary teaching. Whether there were lots of job openings for lawyers did not matter much. Legal work was something they were minimally qualified to do. It looked less hopeless than continuing to compete against others with similar bachelors degrees for jobs that were both unsatisfying and poorly paid.

    Back then there were no programs that forgave student debt if the borrower failed to earn much after graduation. If there had been such an option I don’t doubt that many of my classmates would have opted for that sort of loan rather than an uncomplicated repayment option that appeared to cost less, just looking at the numbers. But I seriously doubt that the availability of an income-based repayment option would have persuaded anyone trying to decide how to earn a living to select law school rather than doing something else.

    Until I see some direct evidence to persuade me otherwise I would not conclude that modern law students decide whether to attend law school based on the details of the student loan repayment plans available to them. If they are like the young people I knew back then they are compelled by economic necessity to incur more debt pursuing a post-grad degree because they are unable to earn a living and repay their existing debt with a bachelor’s degree. The student looks at life from the perspective of a debtor and not from the viewpoint of a prospective employer. The economy herds young people toward law school because it can’t offer them gainful employment without a graduate degree. That circumstance controls enrollment far more than any detail concerning student loan plans or any consideration of oversupply of lawyers.

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