Why Biden's plan to make monthly student-loan payments cheaper could end up sticking borrowers with the same repayment struggles they've had for decades

• For years, income-driven repayment plans for student-loan borrowers were not working as intended.
• That's why Biden introduced a proposal to reform those plans and make monthly payments cheaper.

Angel, 52, has $480,000 in student debt due to a number of factors.

When Angel — who previously spoke to Insider and requested their last name be withheld for privacy — was pursuing two advanced degrees, they had to work at the same time to save money, causing them to spread out their education over the course of that decade.

During that time, Angel's loans were in in-school deferment, which meant they weren't repaying the loans, but interest was still piling up. Angel said they were advised by a customer service representative at a student-loan company to stay in school to defer the loan payments.

Then, after Angel received their degrees, they enrolled in an income-driven repayment (IDR) plan, which is intended to give borrowers affordable monthly payments with the promise of loan forgiveness after at least 20 years. But the plans have seldom worked as intended, leading borrowers to pay off their loans for much longer than they signed up for.

Angel worries they are one of those borrowers, and they have little faith they'll be able to pay off their debt load anytime soon.

"I've struggled to find employment that is sufficient enough to even just pay for a roof over my head and pay my rent, pay for food, pay for a car. I don't live an extravagant life, but just the basic necessities of life, and so I've done the income repayment plan for a while," Angel said. "But it's been very confusing and they don't make it easy."

President Joe Biden intends to remedy that. In January, he unveiled a proposal to make IDR plans much more workable for borrowers. Specifically, it would amend the Revised Pay As You Earn (REPAYE) plan, which was created in 2016 to calculate borrowers' monthly payments based on their discretionary income — and if implemented properly, the changes would cut undergraduate monthly payments in half to no more than 5% of discretionary income, down from the current 10%.

Additionally, the reforms would shorten the timeframe to receive loan forgiveness by allowing borrowers' balances to be forgiven after ten years if they originally borrowed $12,000 or less, along with preventing interest from accruing on borrowers' principal to ensure their balances cannot increase when paying off their loans.

What makes Biden's approach significant this time around is that rather than creating an entirely new IDR plan, he is amending REPAYE and gradually sunsetting other existing programs to streamline the process for new borrowers seeking aid in repayment.

Those changes will be especially helpful for borrowers at risk of delinquency and default, Matthew Chingos, vice president of education and data policy at the think-tank Urban Institute, told Insider. But after so many years of failures with IDR plans, Chingos said he's concerned not much will change.

"The fine print is you have to navigate this system that just hasn't worked for a long time, and we have to kind of trust the federal government that despite the failures of several administrations of both political parties, that somehow this time is going to be different," he said.

"It doubles down on a failed system"

Chingos coauthored an Urban Institute analysis of Biden's proposed changes to IDR, and it estimates that the share of borrowers enrolled in IDR who earn a bachelor's degree that fully pay off their loans would fall from the current 59% to around 22%, and the share of those paying no more than half of what they borrowed would rise from 22% to 49%.

"The Biden plan will transform IDR from a safety net that supports borrowers with low incomes into a substantial subsidy for most undergraduate students who take on debt," the analysis said. "Under current IDR plans, most borrowers can expect to repay some or all their debt. If the Biden plan is implemented as proposed, fully repaying a student loan will be the exception rather than the rule."

Those changes might sound good in theory, but implementation is key, and Chingos said he's worried that "it doubles down on a failed system that just has never worked well."

Insider spoke to a worker at a small Iowa-based student-loan company last year, who requested to remain anonymous to protect her employment. She was there when the Education Department created the first modern income-based repayment plan in 2007, and she said it was "a bad program from the very beginning."

"We didn't even want to tell people about loan forgiveness because we didn't want people banking on it," the worker said. "Because we knew how unlikely it would be for them to get it. People are going to accrue a lot of interest, and it's going to be really bad for them, and we really didn't want to offer it to them."

And in April 2022, an NPR investigation revealed a host of issues with IDR plans over the past decade after only 32 borrowers were found to have qualified for full loan forgiveness. According to NPR, three student-loan companies weren't tracking the payments borrowers were making under the plan, and low-income borrowers who were making $0 monthly payments were hurt the most.

Only so much can be done on the administrative level

Biden's administration was well aware of past issues with IDR plans, with Education Secretary Miguel Cardona saying in a January statement alongside the announcement of the reforms that "we cannot return to the same broken system we had before the pandemic, when a million borrowers defaulted on their loans a year and snowballing interest left millions owing more than they initially borrowed."

And Chingos said that despite historical issues with the plans, the "really responsible" element of Biden's announcement was that rather than creating an entirely new plan, they're revising a current plan and sunsetting all the other versions of IDR plans that were created through regulation.

"I think they've done the most they can through administrative action to simplify and move us towards a world where there really are basically two options, the standard option and an income-based option, and that should, at least in theory, make these programs easier to implement," Chingos said.

That leaves it up to Congress to make other reforms through legislation. In 2019, Congress passed the FUTURE Act, which would simplify IDR plans by giving student-loan companies more authority to monitor payments and keep track of any changes. It will take time for that legislation to be implemented, given that Congress flat-funded the Federal Student Aid (FSA) office, and lawmakers will likely monitor the reforms to IDR as the administration aims to roll them out this year.