Mandatory Spending

Function 500 - Education, Training, Employment, and Social Services

Limit Forgiveness of Graduate Student Loans

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
  Savings Estimated Using the Method Established in the Federal Credit Reform Act
Change in Outlays  
  Increase monthly payments under IDR plans -0.5 -1.1 -1.5 -2.0 -2.4 -2.9 -3.4 -4.0 -4.3 -4.6 -7.4 -26.6
  Extend repayment period for IDR plans -0.3 -0.7 -0.9 -1.1 -1.3 -1.6 -1.9 -2.1 -2.3 -2.4 -4.3 -14.5
  Change definition of discretionary income -0.1 -0.2 -0.4 -0.4 -0.5 -0.6 -0.8 -0.9 -1.0 -1.0 -1.7 -5.9
  Savings Estimated Using the Fair-Value Method
Change in Outlays  
  Increase monthly payments under IDR plans -0.4 -0.9 -1.3 -1.7 -2.1 -2.5 -3.0 -3.4 -3.8 -4.0 -6.4 -23.1
  Extend repayment period for IDR plans -0.2 -0.4 -0.6 -0.7 -0.8 -1.0 -1.2 -1.3 -1.5 -1.5 -2.7 -9.2
  Change definition of discretionary income -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 -0.9 -0.9 -1.5 -5.3

This option would take effect in July 2021.
By law, the costs of federal student loan programs are measured in the budget according to the method established in the Federal Credit Reform Act. The fair-value method is an alternative approach that more fully accounts for market risk; it is included in this table for informational purposes.
IDR = income-driven repayment.

Federal student loans can be forgiven under certain circumstances. The federal government offers several income-driven repayment (IDR) plans in which monthly payments are calculated each year based on a percentage of a borrower’s discretionary income. (Discretionary income is typically defined as adjusted gross income (AGI) above 150 percent of the federal poverty guidelines for a borrower’s household.) Under such plans, after the borrower has made payments for a certain period of time, usually 20 years, the outstanding balance of his or her loans is forgiven. IDR plans do not limit the amount that can be forgiven. The Congressional Budget Office expects that the biggest benefits of those plans currently go to people who borrow to attend graduate or professional school.

This option includes three alternatives that would reduce loan forgiveness for new borrowers who take out federal student loans to pay for graduate school. The first alternative would increase the percentage of discretionary income that graduate borrowers in IDR plans pay on loans to 15 percent, up from the current 10 percent in most plans. (The amount those borrowers pay in some IDR plans is capped, so borrowers with sufficiently high income would pay less than 15 percent of their income.) The second alternative would extend the repayment period until loan forgiveness to 25 years for several IDR plans used by borrowers who take out loans to finance graduate school. The third alternative would change the definition of discretionary income to AGI above 125 percent of the federal poverty guidelines.