Guest Post: A Closer Look at Income-Based Repayment

To be clear: These programs are NOT substitutes for the standard consumer protections that should have never been taken away from student loans in the first place. In fact, they really only bring into sharper focus the immediate need to end the failed experiment of removing fundamental protections from loan instruments in the U.S.

There are many citizens and families who have lived for years and decades under marginalized and extortionist conditions, and they are following this issue intently. They feel betrayed by the decision makers who walked past them- and instead chose to enhance the Federal governments finances with the new DL program and provide help to student populations who haven't even started college yet with these repayment programs. To make the mistake of allowing the good work in these first two areas to justify continued neglect in the third would be doing a grave disservice to a large number of people who found real hope-for the first time in years- in the promise of the new adminisration...and justifiably so.

Having said that,

I do agree that the IBR, and Public Service forgiveness programs have merit for relatively young borrowers (i.e. still in school, or recent graduates) who take on a large amount of debt, and earn low wages...particularly those who work in the public sector, and in general, those who have very clear plans for these 10, or 25 years after college.

However, There are risks, and clear downsides to these programs-(even assuming that the tax penalty is removed)- that are not obvious at first glance, but which must be understood, and considered seriously by students. Most importantly, these programs are not useful or realistic for many borrowers.

1. As I alluded to above: for borrowers already saddled with defaulted loans that are massively inflated with fees and interest above the original amount borrowed, these programs are meaningless.

Both would force defaulted borrowers to "rehabilitate” their loans, which requires signing a new promissory note that legitimizes the vastly inflated debt. Many defaulted borrowers have already paid far more than originally borrowed, and these programs do nothing to address that.

Also, many defaulted borrowers have- for years- already suffered massive losses- both monetary and intangible, and the thought of a 10, or 25 year repayment program is not only unpleasant; in the absence of standard consumer protections that would allow for a relatively swift and straightforward resolution (like for IRS debt, credit card debt, or any other type of debt), these programs are, frankly, insulting. Particularly for older borrowers who look forward a time in their life without the stress associated with intractable student loan debt.

2.For borrowers with high debt/low income taking part in the programs, their balance will increase significantly during the life of the loan. This will impact their debt/income ratio, and in general will weigh increasingly heavily on the mind of the borrower.

3. If for whatever reason the borrower drops out of the program- particularly towards the end of the term- , they will be hit with this extremely large debt. If they were to default, then this would be an astronomical amount.

4. If the borrower should experience financial fortune during this period (particularly towards the end of the period), the borrower will be compelled to use it as a part of the IBR...so in a sense, it essentially guarantees financial mediocrity through the life of the repayment. This tends to dampen ones ambition, and desire to take risks.

5. 10 years is a long time. 25 years is an eternity. Congress took away bankruptcy protections from student loans mid-stream...one can imagine the multitude of ways that this program could be tweaked over time to benefit the Feds as opposed to the borrowers. 501(c)(3) status, for example, could be revoked en masse at some point. Or, the poverty level could be dramatically changed, etc, etc. These and many other factors could make the program fail, or greatly reduce its attractiveness over the life of the loan.

In general, all of this discussion only begs the question: Why is college so expensive that we need these programs in the first place?

Finally....I don't think I am the only person who gets the creepy feeling that these programs smack of population control...sort of a "soft, involuntary servitude". The citizens have no control over the cost of education, and little control over how much they have to borrower to get through school, so many are locked into decades of lifestyle choices dictated greatly by this debt...This is a damper on happiness, freedom, self determination, and a new stress on a large segment of the population.

Ms. Loonin makes a very important point regarding the fact that IBR does not include private student loans, and this is definitely one of the major problems with the program. The argument that Mr. Collinge makes is very valid as well - IBR should definitely not be considered a substitute for the restoration of basic bankruptcy protections for student loans, especially since there are many borrowers that can't benefit from the program and will still face the outrageously predatory nature of their growing student loan debt.

However, I believe the argument not to view IBR as a substitute for the restoration of bankruptcy protection for student loans is even greater for non-federal, private student loans, especially since they can't be included in IBR at all anyway. If these private student loans are not going to "behave" like federal student loans; i.e., by offering income-based repayment, unemployment deferrals, capped interest rates, etc., then why on earth should they enjoy the same bankruptcy exemption that federal student loans enjoy? If Congress is going to lump all student loans (federal and private) together in the bankruptcy code, then they should all have to offer the same borrower protections and benefits. Private lenders should not be able to "claim" that they are offering anything even remotely close to an educationally beneficial loan, but then decide to act like credit cards and payday loans when it comes time to capitalize interest and demand repayment. Congress must change the way private, non-federal student loans are treated in bankruptcy - it's the only fair thing to do as many students are waking up to realize that these private loans are nothing like federally guaranteed student loans, which, for whatever reason, are considered to be "good debt." There's absolutely nothing good about private, non-federal student loans.

Thanks to Ms. Loonin for taking a closer look at IBR, which has been garnering a lot of positive press lately as a "lifesaver" for many student borrowers. It's good to know someone understands that the IBR program should not distract policymakers from the dangers of student loan debt, especially the private, non-federal variety, to which IBR does not even apply.

We want our consumer rights restored PERIOD!
We don't want bogus repayment plans . We want back
our bankruptcy protections and the statute of limitations restored to us.
As citizens we have those inalienable rights under the constitution. Yet the George Bush Administration saw fit to make up the laws as they went and change them all on their own ignoring the fact that what they did was illegal and unconscionable to the mass of the American Public, when they targeted student loans, for their own GREED, and to use as political propaganda.
We pay politicians to do a job for us, and to protect us. The Republican Senators who saw fit to take advantage and get in bed with the banks ….they sought to make money off of our blood.
How, is that American? Did you ever go and check into any of their records to see who donated heavily to their campaigns so they would support what the banks and other assorted wealthy crooks wanted them to do??? If you did, you would be very surprised. And please do not kid yourself that those senators and congressmen that were all involved in this scheme, are honest.........
They have way more money than you and basically do whatever they want. .AT YOUR EXPENSE.......
All of those people in Congress opposing us getting our rights restored are people who had a hand in removing them 9 years ago.....Deals behind closed doors are, and have been rampant in Washington, for decades, and this time during the Bush administration, the "deals" filtered down to each and every state in our country to in effect ruin the lives of hundreds of thousands of honest citizens who only wanted to try to get educated to better their lives and be contributing members of society, and within their communities. Yet These powers that be in Washington along with Sallie Mae, AIG, CitiCorp, Bank of America, Wells Fargo, and most likely THE BILDERBERG GROUP, decided to target student loans for their gains..........Did you check to see who attended their "meetings" behind closed doors that the public is never allowed to know about what they discuss in terms of the world???
None of those big banks deserved to get bailed out on tax payer money becuase it is the Banks and those congress people involved that put us all down the toilet.
They were fiscally irresponsible, most likely 40% of them were stealing money from the "company".It is they who are criminals.
I would love to see all the Republican Congressmen’s’ and the Big Bank executives Bank Account amounts in the Cayman Islands and Switzerland...........
LET US GO!!! That is my statement to the American Government, and make sure ALL private lenders let us go as well.......
Restore our consumer rights. Give us back Bankruptcy protections, and restore the Statute of Limitations.
We do not want your flabby deflated , unacceptable "RE-payment programs. For what? So you can re-word everything and we all still pay 5 times what we borrowed? And still be indentured, and still have no life? For what? So you can re-word everything and our rights are still not restored?
What this government did to us during the Bush Administration is completely unacceptable. Anything other than our restoration of our rights IS UNACCPTABLE .Furthermore, all loans in default should be completely forgiven so you stop wasting tax payer money pursuing us, and so we can have our lives back, and start over.
We are denied licenses so we can work, and certificates. Our salaries are taken from us, our social security? You prevent us from work and you take our life savings for nearly our full lives until most of us are in our 70's........you threaten us, you sue us, you take away every constitutional right from us........
We will not have anything to do with any of your "re- payment plans"
We will not acknowledge you, we will not sign any agreements, we will not pay you NOT BECAUSE WE DO NOT WANT TO BUT BECAUSE WE CAN NOT. You have taken tolls on our lives long enough!!!!
That is my message to the government and to the private lenders.

You people out there who complain about us.....who, call us dead beats, and say all other sorts of uncalled for things...
who say you paid, so we should.......You are idiots of the first degree. So you were fortunate enough to have jobs and struggle....well. some of us out here, we are not fortunate that way.....
You are idiots because you do not see past what your own reality is.....
Many, many people , are actually down trodden, not lucky enough to have found work, and or have their health, or are financially strapped if they do work, and have families to take care of......etcetera!!!
Lets see...."my kids eat for a week, i get to take my medication or I give the bank, or governmentt my loan payment and my kids starve and I go without medication......and oh yeah- consequently,…..I die...……
and did I mention I have no medical insurance so my medication costs about 600 dollars a month.....yet I might make too much for the drug companies to give me free medicine......yet, I fall below an income level that prohibits me from getting bills paid and needs met?
These are things people face, That maybe those of you who judge, have not faced.....and some people have actually killed themselves because
of student loan debts.....

YOU WHO JUDGE HAVE NOT WALKED IN MANY OF OUR SHOES...........
When you are all perfect, have god call me and let me know.

The point is that a serious crime has been committed upon hundreds of thousands of AMERICAN citizens. Because our population of people are an easy target. I’d love to see the government and private lenders try that with businesses and mortgages......Student Loans are a business....just like Lending for businesses and homes are a business. The other loan industries do not have this imposition on them.......
With this failed economy- which will not improve for about 12 more years. No matter what the republican congress tries to sell you on....
Many more people will not only loose their homes---but they were or are students.....and they WILL default....And truly,
A "re=payment" plan is out of the question.......

Our constitutional rights were
removed. Student loans are the only loans in America that have no rights.
We are in effect in debtors prison permanently without walls. It is not our "fault". It is because the student loan industry is crooked, unfair, and has been allowed to commit crimes against us, by our own government.
WAKE UP!!!! DO you honestly think that it will stop here?
If our rights are not completely restored as they should be in terms of our student loans, then I will know that nothing will stop the
government and private lenders from continuing to committ crimes against us. And, I will know that student loans are only the tip of the ice berg.
We who have defaulted ,or are about to default, or who are in financial crisis strained by making loan payments way above what they should be....we, are not criminals. We, are vicitms.
My question to those of you out there who have student loan issues is this......How long do you plan on being a victim???
Tell the government "NO". Tell your lenders "NO", and refuse to pay them another dime or to sign another agreement. TELL THEM "NO".
Make them understand we are not going to put up with being victims anymore. TELL THEM WE WANT OUR RIGHTS RESTORED!
What will they do? There are hundreds of thousands of us in every state in the country who are being victimized by a system we created and that has taken grave advantage of us.....
SAY "NO".Tell this government to completely restore our rights.

I am 52 years old and I have $250,000 in law school debt. I owe $150K in Direct Loans, and $100K in private loans through Sallie Mae. The private loans are virtually in default. While the new IBR program is great for my Direct Loans, I still owe $100K to Sallie Mae which I have little hope of ever paying off.

My particulars include medical problems, including a pre-existing condition for which I have not been able to receive insurance coverage, yet. Therefore, I have had to pay medical expenses myself. Fortunately, that too will change soon.

I made the mistake of attending a private school. It turns out that unless one graduates in the top 20% of your class, the odds of getting a job that pays enough to manage the student loan payments is almost impossible, unless you have a family member or friend who owns a law firm.

The only way I will ever be able to get out from under this $100K debt is through bankruptcy, which I intend to pursue. I will represent myself in the adversarial action against Sallie Mae based on extreme hardship. I believe I will succeed, but I also believe the playing field can be leveled through a careful revision of the current bankruptcy laws as applied to student loans. Nobody believes that opening the door to dismissing all student loans through bankruptcy is an acceptable solution. However, I have been paying on my loans (mainly on their interest and penalties) for ten years. Certainly some modifications to the current bankruptcy laws could be implemented that could filter out the "deadbeats" and provide relief for those who most need it. For example, filters such as number of years of payment, consistency of payment, other credit history, as well as other personal and financial factors. I would be satisfied if, as a result of my action against Sallie Mae, the bankruptcy court reduced my private loan debt to a manageable level. However, it seems this end could also be achieved without a full-blown lawsuit, if the current bankruptcy laws were changed.

My story nearly mirrors Anonymous 2010 and there are a lot of us out there that, simply because of a couple of bad years, unfortunate circumstances, and maybe a bad choice here and there (using those retrospectrovision goggles of intense clarity), have well over 200,000 in accumulated debt, with no way to even earn enough to make a dent in the interest - even if we have reasonably responsible jobs with earnings above the national average.

When you talk about the IBR, it is ludicrous, you mandate permanent life long insolvency, at 53 I would be 78 by the time the further inflated debt is discharged. My son will be 27.

I suffered through seven years after the crash of my business, living in rented rooms, moving from place to place, desperately trying to find more than a minimally paying job. Yet, the solution being offered is to just give me my chance to build my income when I am 78 - and that is only possible if you also make the discharge non-taxible which it is not right now. All this interest being accumulated will become income in 25 years, which means I will end up with a tax debt of 250000 in 25 years?

I can not believe you find this sort of result justifiable and far in a society that lets Teri discharge much of its loan portfolio in bankrupty, allow the principals operating this "non-profit" to retain their bonuses.

Look, I know I made a bad economic choice in going to a private graduate school, I know my business failed in a tough economy, but I know I am not alone.

We must have a return of bankruptcy protections for honest citizens, who no matter how much they would wish, are never going to be able to produce the income that would resolve the student debt in their lifetime. IN the end no one is going to get the money, the student is simply going to be forced to a lifetime of insolvency for one mistake in their life. The mistake of seeking a higher education.

Loonin points out that: "the Department of Education considers private student loan regulation outside of its jurisdiction." Which is absolutely ridiculous on the part of the DOE; since the government is still guaranteeing these loans, since they removed bankruptcy protections from them, since they are touted at public universities, it certainly is their place to regulate! All of this hypocritical anti-government nonsense that brings about privatizing clearly only leads to higher costs, prices, and worse deals for regular people, and then the very politicians who took it upon themselves to sell off these assets claim that their hands our tied; the industry is no longer answerable to democracy; sorry...

We need regulation, we need basic, immediate consumer protections such as bankruptcy (and with no time limits--not 7 or 15 or 25 years of gross poverty and financial ruin) to be extended to all student loans, and if the private industry can't be regulated, then get rid of it altogether; and also the lobbyists who try every day to buy their way into legislation that will be good for them, and bad for us, the current and former students.

IBR is one pitiful excuse of a program. It offers zero help to borrowers with private student loans who have absolutely nowhere to turn.

And now Ms. Loonin tells us that some bankruptcy judges are using IBR to shove destitute borrowers down yet another black hole. I predict that EVERYONE who utilizes IBR will be in worse shape in the end than they are now, for the following reasons: How is it to be determined when 25 years are up? If someone is too poor to use IBR, when does their clock start? How many years will be added on for deferments and forbearances? Just as it was under prior bankruptcy law, when debtors could never seem to come up with the right amount of time “in repayment” to allow their student loan debt to be discharged, people using IBR will also have trouble piecing together the requisite amount of time. And who determines when the time period has run? The same agency that does not accept the Social Security Administration’s assessment that a student loan debtor is disabled? Last but not least, who in their right mind thinks it's a win-win situation to trade student loan debt collectors for the IRS Collection Division?

Most of the brainiacs who concocted IBR will be long gone by the time the first IBR participants complete the program in thirty or forty years. Maybe they figure that anyone who was naïve or optimistic enough to get student loans in the first place, will now be so desperate that they will jump at the chance to sign up for an IBR program that is short on details and full of trouble from the get go.

And where is AARP in all of this? This will be a monumental problem for the elderly in our country, if it isn’t already. Many of these debtors are closing in on becoming senior citizens, and some are already there. It is a travesty when citizens of the United States of America are having their social security checks taken to pay for old student loan debt.

Our legislators should be ashamed of themselves for feeding at the trough of Sallie Mae for all these years. Members of Congress must now stand up and brush the pig excrement off their faces long enough to right this terrible wrong they alone have visited on our citizenry. Restore standard consumer protections, including bankruptcy, immediately.

....to beat borrowers into submission. The Department of Education and private guarantee agencies are already trying to use these programs to argue that there is no such thing anymore as "undue hardship," so debtors should NEVER be allowed to discharge their student loans in bankruptcy. They have already had success with this argument in a Minnesota case, where the 8th CircuitCourt of Appeals, overturned the BK court and District Court refusing to discharge the over $350,000 in student loan debt of a painter living in Grand Marais, MN.

The other issue is that even under these plans, many student debtors are going to find their monthly payments still quite unaffordable. Fifteen percent of your income that is above 1.5 times the poverty level is not an insignificant amount of money. Your landlord, grocery store, auto dealer, etc. do not take into consideration your IBR payments, when figuring out how much you have to pay them. Even under the IBR, many students are going to have to live with their parents, avoid starting a family and make other life altering decisions, such as fleeing the country. Simply put, these programs are not a substitute for standard consumer protections--most importantly the right to get a bankruptcy discharge.

The moral of this story: a program that does business like the mafia dies like the mafia.

Congress created every perverse incentive possible under the student loan program. So now, greedy bankers and state agencies have slashed the student loan program's throat; the students are stabbing at the program's ankles; and the universities will not remove their knives from the heart of the program. The goose that lays golden American eggs is dying. And the eggs are making borrowers financially sick.

Greedy lenders slashed the student loan program in the jugular with high interest, long-term bad collection behavior, poor record keeping, and scandals. Congress wrapped the program's jugular with bankruptcy protection ONLY for the lender. Congress removed all consumer protections from the very people who actually pay for the program. And these consumers are lured by Congress, bankers, parents, employers, the President, pundits, and universities to participate in the program because they need the program. The bankruptcy bandage proves that Congress doesn't want the banks soiled by defaulters who are being financially strangled by the program. Yet the borrowers bailed the greedy bankers out when the housing bubble burst. Now the bankers are getting rich, again.

The student loan program has been stabbed in the heart by universities who cannot and will not wean themselves off their dependence on high tuition. It's too late to try to dilute the high tuition drug (to reduce the universities' cravings) with programs like the micro-loans modeled after Harvard alumni's program; live electronic lectures modeled after webinars (to end the out-of-state tuition game); loan forgiveness programs; getting banks out of the federal part of the student loan program; income contingent repayment for the young, etc. Pursuing these approaches without full restoration of consumer protections, a statute of limitations, and interest forgiveness for defaulters will not deflate the toxic financial bubble that's building before it bursts all over us. We know the universities' stab in the heart of the program is fatal. And universities still haven't bothered to withdraw the knife. So, half-heartedly weakening the drug at this point won't reduce their grip on the knife or heal the heart. Worse, the program's imminent death will hurt all of us at a time when the educational gap between our work force and the rest of the world makes it very hard for Americans to be competitive. The rich know there will have to be tuition caps and massive write-offs to remove the knife and heal the heart and want no part of paying for them.

Congress, bankers, parents, employers, the President, pundits, and universities invited our best and brightest, of low income or utmost ambition, to this knife fight. After enough consumers responded to the invitation, Congress ordered the Department of Education (DOE) to crush low income and ambitious necks under its boot to force payments by removing Constitutionally-guaranteed bankruptcy protection and by not quickly restoring it. By doing so, Congress created a perverse incentive for borrowers to turn a blind eye to any of their employers' unethical or unlawful behavior so they can keep their jobs. Those who are easily paying their loans back feel the perverse incentive the most because they have farther to fall if they lose a lucrative job these days. The law students warned Congress about this already in one law review article after another. And doctors owe more on their loans than lawyers. What message is Congress sending to these young professionals?

DOE's program can't keep its boot on borrowers' necks and survive the banks' and the universities' knives at the same time. But the banks aren't going anywhere because universities won't object to their pretty private loan money and they have bankruptcy protection without a statute of limitations. The borrowers could fight the banks by going to court and driving up the cost of lending, but the borrowers are too weak and it's a double-edged sword. The borrowers could fight the universities by refusing to attend, but ignorance is dangerous during this Information Age. So, the borrowers are eventually going to default like dominos because their lack of financial resources drove them to accept the invitation to this knife fight. The economy doesn't even have to worsen for this to happen because loan balances are getting exponentially higher due to the universities' increased drug tolerance. Default is DOE's Achilles Heel. If borrowers hit the program there (which is the only relief within their reach), the program will collapse while dying of the bankers' fatal neck wound and the universities' knife in the heart. Will borrowers die with the program? It depends on whether the program falls on top of them and they continue to owe under a dead program. This is a fight to the finish because of so many perverse incentives.

The program is creating a circular crowd of dangerous fiends that's closing. That's why its foreseeable death is imminent.

I am 53 and with a recently diagnosed chronic illness -- I had been unable to secure a post-licensure position given the state of the economy. Due to the financial stress my physician has placed me on an indefinate state disability status. There is absolutely no way for me to even make minimum or even interest payments on 100,000.00 of pvt and federal loans. Chances are I will not live to practically take advantage of any indentured servitude plan Am I relegated to life of poverty should my disability be garnished?

I had a student loan of $70,000 for my MA and PhD. I could no longer afford to finish my PhD in the USA so went to Europe and finished in for the total cost of 350 euro (yes!). But while I did that, I had a series of forbearances and deferments on my existing loans that caused it to balloon to over $150,000. This was followed by several years of underemployment and I now owe $240,000.

I cannot come back to the USA as I would not be able to survive (my salary would certainly be garnished), and I could never retire or have a pension. Now Sallie Mae has located me abroad and is trying to collect on the debt in my new country by suing me here.

Let me be clear. I would LOVE to be able to have the income to repay my loan. But I cannot afford $1500/month in payments (about 70% of my income, but I am being taxed at 35% already). There is no end to this hell in sight save death. It can only come too quickly.