Obama Administration Once Said Income-Based Repayment Saves Taxpayers Money

Blog Post
May 21, 2015

After explaining here that the president’s budget shows an $11 billion annual cost for Income-Based Repayment for student loans, now is probably a good time to remind everyone that last year the Obama administration claimed that making this program more generous for borrowers would actually save taxpayers money.

As a refresher, the president proposed making IBR more generous back in 2010, and a Democratic Congress swiftly enacted those changes, but only for future cohorts of borrowers. Borrowers’ payments would be set to 10% of discretionary income instead of 15%, and loan forgiveness would occur no later than 20 years instead of 25. The administration made a limited set of past borrower cohorts eligible for those new terms in 2012 using a different statute.

The administration is now taking similar steps to make all past loans eligible for the more generous IBR terms. The additional cost for this latest expansion is $9 billion, according to the president’s budget. All the more curious then that Cecilia Muñoz, the Director of the White House Domestic Policy Council, told MSNBC just the opposite last year when the expansion was first announced.

She says, “we have a budget proposal which essentially shows that because fewer students default as a result of these kinds of provisions [the IBR expansion], it ends up not necessarily costing funds in the end. So this is both good for government programs, but especially good for students...” The clip is here.

Now that would be a feat. Increase loan forgiveness benefits and save money for taxpayers. Alas, no budget or cost estimate has ever shown that IBR, or any proposal to make it more generous for more borrowers, saves taxpayers money. Not even one from the Obama administration."