Higher Education Lobby Changes Tune on Income-Based Repayment

In a hearing before the U.S. House Committee on Education and the Workforce this week, Terry Hartle of the American Council on Education (the higher education lobby) hinted that his association has had a major change of heart on income-based repayment for federal student loans. Or so it seems. 

At issue was a proposal by Rep. Tom Petri (R-WI) that would move the entire loan program to an income-based repayment system administered through employer payroll withholding. Borrowers would make payments at 15 percent of their discretionary income and there would be no loan forgiveness. Instead, total accrued interest would be capped at 50 percent of what a student borrows. Those terms are far less generous than the plan the Obama administration proposed in 2010 and enacted late last year, called Pay As You Earn or Income-Based Repayment. Under that plan, borrowers pay 10 percent of their incomes, 33 percent less per month than the Petri plan, and have their debt forgiven after 10 or 20 years.

Mr. Hartle told the Committee that the Petri proposal “could become an incentive to over-borrowing,” an outcome that he said, “no one wants.” If the Petri proposal more or less rolls back the Obama administration’s Pay As You Earn and Income-Based Repayment plans and replaces them with something that requires borrowers to pay more and for longer, one wonders what the American Council on Education’s position is on the Obama administration plan, which is in current law and available to nearly all new borrowers going forward.

Does Mr. Hartle believe the plan available now for recent borrowers encourages over-borrowing too? If so, that would be a new position for the American Council on Education.

When the president laid out the details of his Pay As You Earn plan in 2010, the American Council on Education rushed to send the White House a letter (available here). The Council’s letter expresses no concern about incentives for over-borrowing, despite the fact that the president’s program is far more likely to encourage over-borrowing (as outlined in this New America Foundation paper) than the Petri proposal because its terms are so much more generous for borrowers, mainly graduate students. The letter is a straight-up endorsement of the president’s proposal to “expand” benefits under Income-Based Repayment.

What explains the inconsistency in ACE’s “strong support” for the Obama administration’s plan and its cautionary warnings about over-borrowing under the Petri plan? (Maybe their position has evolved since they endorsed the Obama administration plan in 2010, and the group does in fact have concerns about it now.) It is unfortunate that the Committee didn’t think to ask Mr. Hartle to explain that glaring inconsistency.

Disclosure: The author worked for Rep. Petri from 2000 to 2005.