Income-driven repayment has become a popular option for those struggling to pay off their student loans. Under this type or agreement, the borrower makes monthly payments that are capped at 15 percent of their income, and any remaining debt after 25 years is forgiven. In an article published by U.S News, policy experts expressed concern that the plan could result in student borrowers paying more over the course of their loan.
"Income-driven repayment is a crucial option for federal student loan borrowers. It can help keep monthly payments manageable and prevent default, but it's not the best choice for everyone," Lauren Asher, president of the Institute for College Access and Success, said in a statement.
An example given by the source shows that a borrower with $29,400 in debt with a $35,000 salary would have a total payment that is 26 percent higher than the standard 10-year repayment plan. This debt makes it harder for the individual to save for retirement, start a family or make major purchases, such as a car or home. This has a far-reaching detrimental effect on the economy.
However, the Huffington Post reveals that these types of loans will generate a profit for the U.S. Department of Education to the tune of $127 billion over the next decade. Education Secretary Arne Duncan plans to use the profit to help reduce the operating cost of the department, and budget documents show that the department is operating at the lowest cost to taxpayers since 2001.
It is still the responsibility of the lenders to make sure that suitable application processing is performed for all borrowers to make sure there are no problems with repayment later on.