Loan repayment plans that set borrower payments to an affordable percentage of the borrower’s discretionary income while requiring no payments from the lowest-income borrowers (offering a payment waiver) have emerged as potential solutions to addressing unaffordable student loan payments. Examples of such plans include the U.S. Department of Education’s Saving on a Valuable Education (SAVE) income-driven repayment plan for federal student loans, introduced in 2023, as well as certain income-share agreements offered by private lenders. In this CFI in Focus, Tomás Monarrez and Dubravka Ritter summarize insights from three recent Consumer Finance Institute studies on various aspects of these income-contingent student loan repayment plans — from the complex factors influencing the decision to take out student loans, to the choice of repayment plan after leaving college. They discuss the potential for income-contingent repayment plans to alleviate the financial stress of unemployment and income variability for student loan borrowers, while also highlighting the design and implementation challenges and taxpayer costs these repayment plans may entail.

View the Full Article