Direct Student Loans:
Analyses of Borrowers' Use of the Income Contingent Repayment Option
HEHS-97-155, Aug 21, 1997
Pursuant to a congressional request, GAO reviewed borrowers' use of the William D. Ford Federal Direct Loan Program's (FDLP) income contingent repayment (ICR) plan, focusing on: (1) the extent to which borrowers are using ICR compared with other repayment plans available under FDLP; (2) how loan delinquencies and defaults under ICR compare with delinquencies and defaults under other FDLP repayment plans; (3) how loan payments under ICR compare with payments under other FDLP repayment plans; and (4) how the Department of Education, which administers the program, verifies the accuracy of income reported by borrowers using ICR.
GAO noted that: (1) as of March 31, 1997, about 663,000 borrowers owing about $5.3 billion in FDLP loans were repaying loans; (2) about 9 percent of these borrowers were using ICR; (3) GAO found that 80 percent of borrowers using ICR either were current in their monthly payments or had their payments suspended because they were in school or for other reasons; (4) borrowers using ICR tended to be delinquent or in default at higher percentages than borrowers using other repayment plans; (5) borrowers who have been placed into the ICR plan because they have defaulted on an Federal Family Education Loan Program (FFELP) loan are a major factor in the higher percentage of defaults for ICR users; (6) of the 2,832 borrowers using ICR and in default, 2,083, or 73.6 percent, had defaulted on an FFELP loan; (7) comparing estimated total loan payments for ICR users and borrowers who use the three other repayment plans is complicated; (8) compared with borrowers who use the standard repayment plan, ICR users and those using extended and graduated plans generally face higher total payments; (9) compared with borrowers who use the extended or graduated repayment plans, ICR users face comparatively higher total payments if their incomes are low but comparatively lower total payments if their incomes are high; (10) the Department of Education checks the reported income of borrowers using ICR in one of two ways; (11) for borrowers who are in their first year of repayment or who may have recently lost their jobs, the Department relies primarily on documentation submited by the borrower, such as pay stubs, dividend statements, or cancelled checks; (12) the Department does not verify the accuracy of this documentation when it is submitted; rather it relies on a signed certification from the borrower that the information is complete and accurate; (13) for borrowers who have been out of school for a year or more, the Department obtains income information directly from the Internal Revenue Service (IRS); (14) the Department does not verify the accuracy of information borrowers provide IRS but relies on IRS' verification process; (15) however, during the transition from using borrower documentation to using IRS information, the Department compares the income amounts from the two sources for discrepancies; and (16) if there are significant discrepancies or if borrowers do not cooperate in providing correct income information, they are removed from the ICR plan and placed into another repayment plan.