What U.S. Student Loan Repayment Budget Estimates Mean to Borrowers

Last week's higher education headlines were packed with stories about a federal report on the projected cost of forgiveness under income-driven repayment plans. Currently, certain income-driven repayment plans require payment on federal student loans for 20 to 25 years -- 10 years if the borrower works in public service -- and then the federal government forgives any remaining balance, although th e forgiven amount is taxed as income.

The report was critical of the Department of Education's approach to estimating the amount projected to be forgiven for all federal student loans borrowed between 1995 and 2017, in particular because the department's latest projections doubled the anticipated amount from the original estimates for at least some of the loans in question. Oddly, the report claims that the original projections for loans made prior to 2009 were not available.

[Look at this side-by-side comparison of three income-based repayment plans.]

The report stated that 40 percent of all outstanding direct loan dollars are currently being paid under an income-driven plan, which works out to almost a quarter of all borrowers -- more than twice the number enrolled in the plans just three years ago.

This significant increase can be attributed to the substantial amount of outreach the Department of Education and even the White House have initiated. The Student Loan Ranger supports these initiatives because they have helped ensure that borrowers are aware of their options for relief if they find their loan debt overwhelming.

However, the GAO report states that the subsidy cost to federal taxpayers for the d irect l oan program now lies at a n average cost of $21 for every $100 disbursed under the program. With such a high cost, especially for a program that is often touted as a profit maker for the federal government, the fear has become that the new Congress or administration will cut t hese income-driven repayment plans .

This has thrown some consumers with existing education debt -- especially those with higher student debt compared with their incomes -- into a bit of a panic. Cutting these programs would leave many borrowers with unaffordable student loan payments and no options for relief.

[Read stories about how real borrowers repay their student loans.]

However, you do not need to worry -- that's almost certainly not going to happen.

First and probably most importantly, in our entire careers in the student loan industry, the Student Loan Ranger has never seen Congress retroactively remove a benefit from an existing borrower. Any changes made that affect borrower benefits are always effective for loans borrowed on or after the date the legislation is signed.

Could Congress or the administration handle legislation differently? Maybe -- but considering the political backlash of doing so, we're confident they won't.

Instead, we could expect a cap on forgiveness amounts or a consolidation of the various income-driven plans to a single plan. Again, these changes would almost certainly only affect students who took out loans after the date the new legislation was signed.

The second reason not to panic is that the report , by the Government Accountability Office, heavily criticized the Department of Education for what it called flawed estimates. For example, according to the report, the Department of Education's estimates did not assume that any borrowers utilizing an income-driven plan would enjoy an increase in salary or leave the plans at some point.

[Find four ways to stay on top on an income-driven repayment plan.]

Clearly both are faulty. The GAO made its own estimates and included cost-of-living increases for borrower wages.

This small adjustment alone results in a reduction in subsidy costs of almost 25 percent. So, the real point of this report wasn't that these plans cost double original estimates , but that we truly don't know what they actually will cost.

Many students today are borrowing for college with the assumption they'll be able to make payments based on income in the future and maybe even obtain some loan forgiveness. While the concept of income-driven repayment plans in general has bipartisan support and the new administration has proposed streamlining these plans into one, this new data, at first glance, may give policymakers pause.

We hope the government makes an effort to truly understand the impact these plans have on taxpayers and borrowers and to ensure that any legislative changes do not increase student debt struggles. However, as always, consumers should borrow with the assumption that they'll have to repay every cent of their student debt, because most will.

Finally, if you believe that Public Service Loan Forgiveness and income-based repayment programs are important societal benefits, let your government representatives know.

Betsy Mayotte, director of consumer outreach and compliance for American Student Assistance, regularly advises consumers on planning and paying for college. Mayotte, who received a B.S. in business communications from Bentley College, responds to public inquiries via the advice resource "Just Ask" and is frequently quoted in traditional and social media on the topics of student loans and financial aid.