From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Student Loan Income-Driven Repayment Plans

Description: Audio interview by GAO staff with Melissa Emrey-Arras,
Director, Education, Workforce and Income Security

Related GAO Work: GAO-17-22: Federal Student Loans: Education Needs to
Improve Its Income-Driven Repayment Plan Budget Estimates

Released: November 2016


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[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's
November 2016. The Department of Education's income driven repayment
plans allow federal student loan borrowers to make lower payments over a
longer period of time based on their incomes. In 2016, more than 5
million borrowers were taking advantage of these plans, but how much do
they cost the governmentEUR A team led by Melissa Emrey-Arras, a
director in GAOs Education Workforce and Income Security team, recently
looked at the Department of Education's process for estimating the costs
of these plans. Jacques Arsenault sat down with Melissa to talk about
what they found.

[ Jacques Arsenault: ] Your team looked at income driven repayment plans
for federal student loans. What do we know about how much these plans
cost the federal governmentEUR

[ Melissa Emrey-Arras: ] That's a really good question and that was the
focus of our study. The Department of Education estimates that the cost
for all federal direct loans in these income driven repayment plans will
ultimately be $74 billion. So that's the amount that will not be repaid
by the borrowers, and that will be the ultimate cost for the government.
And in this report we looked at how Education came up with that number
and found that their estimate could be really off. In fact, we found
that it could be off by billions of dollars. It could be over or under
that number by billions.

[ Jacques Arsenault: ] So there's definitely some variation in terms of
what we know about the cost of these plans. Stepping back a bit, can you
explain what these repayment plans areEUR And what are their benefits
for borrowersEUR

[ Melissa Emrey-Arras: ] Income driven repayment plans are plans that
allow borrowers to pay less each month for a longer period of time. So
these plans are particularly helpful for low-income borrowers who may be
struggling with their monthly payments. And it extends the period that
they pay back their loans from the standard payment period of ten years
to up to 25 years. And at that endpoint of 25 years, for example, any
remaining balances would be forgiven. So it can be very helpful for
borrowers. And, in fact, over 5 million borrowers are now participating
in these plans. And these plans can help them manage their monthly
payments as well as potentially reduce their risk of defaulting on their
student loans. And we actually did some work prior to this current
report that found that the default rates were much lower for borrowers
who are in these income-based repayment plans versus those who are in
the standard plans.

[ Jacques Arsenault: ] Let me ask you, then, are there steps that
Education can take to develop more reliable budget estimates for these
plansEUR

[ Melissa Emrey-Arras: ] Definitely. And we're making multiple
recommendations in this report to Education to do just that. We think
that there are many things they can do to improve how it estimates the
cost of these plans. And just one example, I think, is very helpful to
illustrate that. For example, we found that they did not account for
inflation in their cost estimates. And when we counted for inflation, we
found that the cost for these plans dropped by over $17 billion. So
that's just a concrete example of how Education can improve how it
estimates the cost.

[ Jacques Arsenault: ] And, finally, these plans certainly seem to have
benefits for borrowers, but when it comes to the federal budget and
taxpayer dollars, what would you say is the bottom line of this
reportEUR

[ Melissa Emrey-Arras: ] The bottom line is that income-driven repayment
plans do hold promise particularly for helping struggling borrowers, yet
there can be a significant cost for the government. However, as this
report shows, it's really hard to know what that cost will be,
especially because the Department of Education's cost estimate may be
unreliable. And because of what we found in terms of the weaknesses of
its methodology, we are strongly encouraging the department to implement
our recommendations to improve how it derives that cost estimate to make
sure that the federal government knows how much these plans cost and
policymakers can keep that in mind as they move forward.

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[ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the congressional
watchdog, the U.S. Government Accountability Office.