Student Loan Relief Programs: Implications for Borrowers and the Federal Government

Abstract

As college costs increase and more students fund their education through borrowing, debt load and delinquency rates have become significant problems. This article discusses the impacts of the federal student loan repayment relief programs that are available. The implications of relief plans on borrowers’ costs and the federal budget vary by plan and for different loan amounts and income levels, making it challenging for policy-makers to design programs that adequately balance risks between borrowers and taxpayers. Existing programs are also complicated, making it difficult for borrowers to make informed decisions on repayment programs. We examine how the various programs work in practice and consider their likely outcomes over a set of income-debt-program scenarios, bringing clarity to the repayment environment. We find that lower-income borrowers and borrowers who will have significant remaining balances forgiven at the end of the required repayment period are generally more likely to benefit from loan relief programs, but participation of these borrowers can be very costly.