Could Income-Driven Repayment Go Away? How Biden’s Changes Put Some IDR Plans at Risk

One belief most student loan experts have held is that borrowers currently in repayment cannot be removed from their income-driven repayment plan (IDR plan) except by an act of Congress. Most experts also used to believe that borrowers cannot be made worse off if they’re already on a repayment plan.

Since Congress would need 60 votes in the Senate to change IDR plans that are in statute, the assumption has been that student loan borrowers hoping for forgiveness have very little to worry about, regardless of who’s in the White House.

However, with President Biden’s well-intentioned effort at reforming and simplifying IDR plans, he might have opened the door to a future Republican President to eliminate many of the most generous student loan forgiveness options available.

We’ll go over the plans that could get eliminated one day versus the ones that are very safe.

How a Future President Could Try to Eliminate REPAYE and PAYE

To know how at-risk IDR is, we should look at which plans were created by Congress and which were created by executive action.

IBR is listed in the statute. It would take 60 votes in the Senate to change.

However, the Revised Pay As You Earn (REPAYE) and Pay As You Earn (PAYE) plans were created by the Obama administration.

The President has broad power under the Income Contingent Repayment (ICR) statute to create a new repayment plan for student loans for any reason. That’s how President Obama made PAYE and REPAYE.

The assumption was that a borrower with these plans listed in their legal contract (called a promissory note) could not be taken off these plans. That seems only to be partially true.

How PAYE is Safe But Only for Borrowers Not in School

One positive action taken by the Biden administration is not forcing borrowers off PAYE.

That at least sets a precedent that borrowers cannot be taken off the plan.

However, if you’re not enrolled by July 2023, you cannot sign up for PAYE later.

That is a big departure from historical policy, as PAYE is in the promissory notes of millions of borrowers currently in school who would be blocked from enrolling in it.

This action of walling off a repayment plan for some sets the precedent that a future President could block enrollment in the most generous IDR plans for those not already signed up for them.

Why Amending REPAYE is So Dangerous for Future Precedent

The administration could have created a new IDR plan and not created any bad precedents that a future administration could exploit.

But that would not have achieved the simplification of the IDR system the White House desired.

This is why they opted to modify the terms of the existing REPAYE program.

Additionally, this program was already available to anyone with a Direct Loan, in contrast to programs like PAYE that have restrictions based on new borrower status.

The problem is that some borrowers on REPAYE will be worse off.

Anyone with a low debt-to-income ratio and a spouse with a lot of debt relative to income who is also filing separately and paying on PAYE would see their payments rise significantly.

While most borrowers would be better off, not all would.

That means a future administration could modify the terms of existing IDR plans if it wouldn’t make all borrowers worse off.

A future administration could argue that by increasing the payment requirement on REPAYE to 20% of income, some borrowers would pay less interest and thus be better off, which would offset borrowers losing enormous benefits under New REPAYE.

Hence, President Biden has opened the door to a future Republican administration if it desired to eliminate many of the student loan benefits created by the Obama and Biden administrations. That Republican White House would simply need to modify existing IDR plans through the regulatory process.

That said, this would not take away forgiveness for all borrowers, thanks to statutes written by Congress. Let’s see why.

Why Programs like IBR and PSLF Are Very Safe No Matter What

The “Old IBR” and “New IBR” plans are statutory, which means the rules were created by Congress.

The same is true of the PSLF program.

No President can change the statute — it's a power reserved for Congress.

For a borrower hoping to receive forgiveness under a 10 or 20-to-25-year option, the Old and New IBR plans are secure, so they effectively provide a backup plan in case of bold anti-forgiveness action by a future administration.

We used to believe that PAYE and REPAYE were very secure as well due to these plans being in the promissory notes of borrowers. Still, the actions taken by the Biden administration raise questions about the permanence of these plans.

If you’re still a strong forgiveness case under the rules of Old IBR or New IBR, you’re a very secure forgiveness case overall.

You would want to get credit towards forgiveness under the most advantageous plan right now. Still, you needn’t worry about future changes more than individuals worry about slight modifications to tax policy thanks to the New and Old IBR plans.

Established Borrowers Can Gain Huge Benefits Regardless of Future IDR Changes

Just as the PSLF Waiver happened and then did not get reversed for individuals who received a discharge, so too would interest subsidies or forgiveness credits that occur under the PAYE or New REPAYE plans.

If you’re worried about these repayment options going away, don’t be.

Most borrowers pursuing forgiveness would still pursue it on IBR.

If your income is high enough that losing PAYE or REPAYE would stop you from doing forgiveness, then you simply need to focus on growing wealth and growing assets instead of worrying about paying down debt. Focus on what you can control.

Current borrowers enrolled in a plan will be given the option to stay on it.

The danger is that the plan rules could be modified.

If that happens, you’d want to run the analysis to see if the benefits you’re gaining will be worth any downside that could occur if generous repayment provisions were reversed. We’re happy to help if you want a comparison of New REPAYE to PAYE and New / Old IBR.