FEDERAL STUDENT 

LOANS

Education Needs to 

Improve Its IncomeDriven Repayment 

Plan Budget 

Estimates

Report to the Chairman, Committee on 

the Budget, U.S. Senate

November 2016

GAO-17-22

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-22, a report to the 

Chairman, Committee on the Budget, U.S.

Senate

November 2016

FEDERAL STUDENT LOANS

Education Needs to Improve Its Income-Driven 

Repayment Plan Budget Estimates

What GAO Found

For the fiscal year 2017 budget, the U.S. Department of Education (Education) 

estimates that all federally issued Direct Loans in Income-Driven Repayment 

(IDR) plans will have government costs of $74 billion, higher than previous 

budget estimates. IDR plans are designed to help ease student debt burden by

setting loan payments as a percentage of borrower income, extending

repayment periods from the standard 10 years to up to 25 years, and forgiving

remaining balances at the end of that period. While actual costs cannot be 

known until borrowers repay their loans, GAO found that current IDR plan budget 

estimates are more than double what was originally expected for loans made in 

fiscal years 2009 through 2016 (the only years for which original estimates are 

available). This growth is largely due to the rising volume of loans in IDR plans. 

Estimated Costs of Direct Loans in Income-Driven Repayment Plans

Note: Due to the timing of the fiscal year 2017 budget, the amount of loans made to borrowers in 

fiscal years 2016 and 2017 are estimated.

Education’s approach to estimating IDR plan costs and quality control practices

do not ensure reliable budget estimates. Weaknesses in this approach may 

cause costs to be over- or understated by billions of dollars. For instance: 

• Education assumes that borrowers’ incomes will not grow with inflation 

even though federal guidelines for estimating loan costs state that 

estimates should account for relevant economic factors. GAO tested this 

assumption by incorporating inflation into income forecasts, and found 

that estimated costs fell by over $17 billion. 

• Education also assumes no borrowers will switch into or out of IDR plans 

in the future despite participation growth that has led budget estimates to 

more than double from $25 to $53 billion for loans made in recent fiscal 

years. Predicting plan switching would be advisable per federal guidance 

on estimating loan costs. Education has begun developing a revised 

model with this capability, but this model is not complete and it is not yet 

clear when or how well it will reflect IDR plan participation trends. 

Insufficient quality controls contributed to issues GAO identified. For instance: 

• Education tested only one assumption for reasonableness, and did so at 

the request of others, although such testing is recommended in federal 

guidance on estimating loan costs. Without further model testing, 

Education’s estimates may be based on unreasonable assumptions.

Due to growing IDR plan popularity, improving Education’s estimation approach

is especially important. Until that happens, IDR plan budget estimates will remain 

in question, and Congress’s ability to make informed decisions may be affected.

View GAO-17-22. For more information, 

contact Melissa Emrey-Arras at (617) 788-

0534 or emreyarrasm@gao.gov.

Why GAO Did This Study

As of June 2016, 24 percent of Direct 

Loan borrowers repaying their loans 

(or 5.3 million borrowers) were doing 

so in IDR plans, compared to 10 

percent in June 2013. Education 

expects these plans to have costs to 

the government. GAO was asked to 

review Education’s IDR plan budget 

estimates and estimation methodology. 

This report examines: (1) current IDR 

plan budget estimates and how those 

estimates have changed over time,

and (2) the extent to which Education’s 

approach to estimating costs and 

quality control practices help ensure 

reliable estimates. GAO analyzed 

published and unpublished budget 

data covering Direct Loans made from 

fiscal years 1995 through 2015 and 

estimated to be made in 2016 and 

2017; analyzed and tested Education’s

computer code used to estimate IDR 

plan costs; reviewed documentation 

related to Education’s estimation 

approach; and interviewed officials at 

Education and other federal agencies. 

What GAO Recommends

GAO is making six recommendations

to Education to improve the quality of 

its IDR plan budget estimates. These 

include adjusting borrower income 

forecasts for inflation, completing 

planned model revisions and ensuring 

that they generate reasonable 

predictions of participation trends, and 

testing key assumptions. Education 

generally agreed with GAO’s 

recommendations and noted actions it 

would take to address them.
Page i GAO-17-22 Income Driven Repayment Plan Costs

Letter 1

Background 3

Education’s Budget Estimates of IDR Plan Costs Are Growing, but 

Actual Costs Will Not Be Known for Many Years 12

IDR Plan Budget Estimates May Be Unreliable Due to Limitations 

in Education’s Approach and Inadequate Quality Control 

Practices 29

Conclusions 52

Recommendations for Executive Action 53

Agency Comments and Our Evaluation 54

Appendix I Objectives, Scope, and Methodology 57

Appendix II Description of Education’s Approach to Estimating Costs of IncomeDriven Repayment Plans 64

Appendix III Evaluation of Income Data Used in Education’s Approach 70

Appendix IV Supplemental Direct Loan Subsidy Cost Data 84

Appendix V Comments from the U.S. Department of Education 88

Appendix VI GAO Contact and Staff Acknowledgments 93

Tables

Table 1: Descriptive Statistics on Imputed and Actual Income Data 

(Tax Years 1996 through 2013) 76

Table 2: President’s Fiscal Year 2016 and 2017 Budget Estimated 

Subsidy Rates, Loan Volumes, and Subsidy Costs for All 

Direct Loans in Income-Driven Repayment Plans, by Loan 

Type 84

Contents
Page ii GAO-17-22 Income Driven Repayment Plan Costs

Table 3: President’s Fiscal Years 2016 and 2017 Budget 

Estimated Subsidy Costs for All Direct Loans, by Loan 

Type and Repayment Plan 85

Table 4: President’s Fiscal Years 2016 and 2017 Budget 

Estimated Subsidy Rates for All Direct Loans, by Loan 

Type and Repayment Plan 86

Table 5: President’s Fiscal Years 2016 and 2017 Budget 

Estimated Loan Volume for All Direct Loans, by Loan 

Type and Repayment Plan 87

Figures

Figure 1: Direct Loan Repayment Plans 5

Figure 2: Amount Paid by Hypothetical Borrower with Public 

Service Loan Forgiveness, under a Sample IncomeDriven Repayment Plan and the Standard 10-Year 

Repayment Plan 8

Figure 3: Direct Loan Dollars and Borrowers in Income-Driven 

Repayment Plans, Third Quarter Fiscal Year 2013 

through Third Quarter Fiscal Year 2016 9

Figure 4: Current Estimated Subsidy Costs of All Direct Loans in 

Income-Driven Repayment Plans (Fiscal Year 2017 

Budget) 13

Figure 5: Current Estimated Subsidy Costs of All Direct Loans in 

Income-Driven Repayment Plans, by Loan Type (Fiscal 

Year 2017 Budget) 14

Figure 6: Current Estimated Subsidy Costs of Direct Loans in 

Income-Driven Repayment Plans, by Loan Cohort (Fiscal 

Year 2017 Budget) 15

Figure 7: Current Estimated Direct Loan Volume in Income-Driven 

Repayment Plans, by Loan Cohort (Fiscal Year 2017 

Budget) 17

Figure 8: Current Estimated Subsidy Rates of Direct Loans in 

Income-Driven Repayment Plans, by Loan Cohort (Fiscal

Year 2017 Budget) 18

Figure 9: Original and Current (Fiscal Year 2017 Budget) 

Estimated Subsidy Costs of Direct Loans in IncomeDriven Repayment Plans, 2009-2016 Loan Cohorts 20

Figure 10: Original and Current (Fiscal Year 2017 Budget) 

Estimated Loan Volume and Subsidy Rates for Direct 

Loans in Income-Driven Repayment Plans, 2009-2016 

Loan Cohorts 21
Page iii GAO-17-22 Income Driven Repayment Plan Costs

Figure 11: Original, Third Year, and Current (Fiscal Year 2017 

Budget) Estimated Subsidy Costs for Direct Loans in 

Income-Driven Repayment Plans, 2011-2014 Loan 

Cohorts 24

Figure 12: Current Estimated Subsidy Costs and Income for Direct 

Loans, by Loan Cohort and Repayment Plan (Fiscal Year 

2017 Budget) 26

Figure 13: Current Estimated Subsidy Costs and Income for All 

Direct Loans, by Loan Type and Repayment Plan (Fiscal 

Year 2017 Budget) 28

Figure 14: Estimated Historical Incomes for Randomly Selected 

Sample of Direct Loan Borrowers Used in Education’s 

Approach to Estimating Costs of Loans in Income-Driven 

Repayment Plans, For Each Borrower’s First 10 Years in 

Repayment 31

Figure 15: Impact of Adjusting Borrower Income Forecasts for 

Inflation on Estimated Subsidy Costs of Direct Loans in 

Income-Driven Repayment Plans, 1995-2017 Loan 

Cohorts 35

Figure 16: Impact of Increasing Public Service Loan Forgiveness 

Participation on Estimated Subsidy Costs of Direct Loans 

in Income-Driven Repayment Plans, 1995-2017 Loan 

Cohorts 47

Figure 17: Impact of Reducing Public Service Loan Forgiveness 

Participation on Estimated Subsidy Costs of Direct Loans 

in Income-Driven Repayment Plans, 1995-2017 Loan 

Cohorts 48

Figure 18: Direct Loan Principal in Income-Driven Repayment 

Plans Estimated to Be Repaid, Discharged, and 

Forgiven, 1995-2017 Loan Cohorts 51

Figure 19: Treasury’s Estimated Historical Incomes for Randomly 

Selected Sample of Direct Loan Borrowers 77

Figure 20: Treasury’s Estimated Historical Incomes for Randomly 

Selected Direct Loan Borrowers (Tax Years 1996 through 

2013) 78
Page iv GAO-17-22 Income Driven Repayment Plan Costs

Abbreviations 

Direct Loan William D. Ford Federal Direct Loan Program

Education U.S. Department of Education

IDR Income-Driven Repayment 

OMB Office of Management and Budget

PSLF Public Service Loan Forgiveness 

Treasury U.S. Department of the Treasury

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Page 1 GAO-17-22 Income Driven Repayment Plan Costs

441 G St. N.W.

Washington, DC 20548

November 15, 2016

The Honorable Michael B. Enzi

Chairman

Committee on the Budget

United States Senate

Dear Mr. Chairman:

Currently, over 30 million student loan borrowers hold more than $900 

billion in William D. Ford Federal Direct Loans (Direct Loans), and there 

are indications that some face difficulties repaying their loans. For 

instance, almost 20 percent of Direct Loan borrowers were delinquent on 

their loan payments at the end of 2015, and more than a million 

borrowers defaulted on their loans over the 2015 fiscal year. Since 2009, 

the U.S. Department of Education (Education) has created several new 

Income-Driven Repayment (IDR) plans that borrowers can select to 

reduce challenges they face in repaying their loans. These plans primarily 

base payment amounts on a borrower’s income and extend repayment 

periods from the standard 10 years to up to 25 years with any remaining 

balance forgiven at the end of that period.

Participation in IDR plans is growing, as is their estimated cost to the 

government. By June 2016, 24 percent of borrowers repaying their loans 

(or 5.3 million borrowers) were doing so in IDR plans, and it is likely that 

more will join in the future. We reported in 2015 that there were gaps in 

awareness about IDR plans.1 In April 2016, the Administration announced 

a new goal to add 2 million new borrowers to IDR plans over the next 

year, through efforts including targeted outreach. Education has also 

increased its estimates of IDR plan costs. For instance, in its fiscal year 

2016 budget justification, Education revised its prior-year estimates of 

Direct Loan costs upward by $12.3 billion, and cited growing IDR plan 

enrollment as the primary cause.

Given questions among policymakers and experts about IDR plan costs 

to the federal government, you asked us to examine Education’s IDR plan 

 1 GAO, Federal Student Loans: Education Could Do More to Help Ensure Borrowers are 

Aware of Repayment and Forgiveness Options, GAO-15-663 (Washington, D.C.: Aug. 25, 

2015).

Letter
Page 2 GAO-17-22 Income Driven Repayment Plan Costs

budget estimates and evaluate its approach to estimating costs. In this 

report, we examine:

1. What are Education’s current IDR plan budget estimates and how 

have they changed over time?

2. To what extent do Education’s approach to estimating IDR plan costs 

and quality control practices help ensure reliable budget estimates?

We used a variety of methods to answer these questions. We reviewed 

relevant federal laws, regulations, and guidance regarding subsidy cost 

estimates and IDR plans. We also interviewed officials from the 

Congressional Budget Office and the U.S. Department of the Treasury 

(Treasury) and staff from the Office of Management and Budget (OMB), 

the office that oversees the formulation of the President’s budget, as well 

as higher education policy experts to discuss issues related to federal 

budgeting practices and estimated IDR plan costs. Additionally, we 

reviewed documentation and interviewed officials from Education about 

the agency’s approach to estimating costs and its quality control 

practices.

We analyzed data underlying Education’s annual budget estimates for the 

Direct Loan program. To address our first objective, we analyzed data 

from two sources: (1) Education’s annual submissions to the President’s 

budget for fiscal years 2011 through 2017 and (2) supplemental data 

provided by Education that rely on the data and assumptions underlying 

its fiscal year 2016 and 2017 budget estimates.2 To address our second 

objective, we reviewed the computer programs and data Education uses 

to estimate repayment patterns for loans in IDR plans. We then used 

these programs to generate our own estimates of how changing selected 

assumptions would affect cost estimates.3 We also analyzed estimated 

cash flow data for loans in IDR plans to estimate the proportion of loan 

dollars Education expects to be forgiven through these plans. To assess 

 2 The President’s budget appendix includes disaggregated estimates of IDR plan costs for 

Direct Loans issued in the current and two most recent fiscal years. The earliest budget 

containing such break-outs—the fiscal year 2011 budget—includes estimated IDR plan 

costs for loans issued in fiscal years 2009, 2010, and 2011. The supplemental data

queries we requested from Education included break-outs of estimated IDR plan costs for 

Direct Loans issued from fiscal years 1995 through 2017. 

3 Specifically, we used these programs to generate alternate IDR plan repayment 

streams. Education then produced updated subsidy cost estimates using our revised 

repayment streams. We used Education’s fiscal year 2017 budget estimates as a baseline 

against which to measure the impact of our changes to Education’s assumptions.
Page 3 GAO-17-22 Income Driven Repayment Plan Costs

the reliability of Education’s budget estimates, we interviewed agency 

officials, reviewed related documentation, and conducted extensive 

electronic testing. We believe the data are reliable to report on the 

funding Education reports is necessary to operate the Direct Loan 

program, and to illustrate the sensitivity of Education’s budget estimates 

to different assumptions about future loan repayment activity. We 

evaluated Education’s approach to estimating IDR plan costs and quality 

control practices using guidance for estimating subsidy costs issued by 

the Federal Accounting Standards Advisory Board, accepted statistical 

practices, and Education’s information quality guidelines, among other 

sources. We assessed Education’s information sharing practices against 

Education’s strategic plan and standards for internal control in the federal 

government. See appendix I for more information on our methodology 

and appendix II for more information on Education’s approach.

We conducted this performance audit from March 2015 to November 

2016 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

Education’s Direct Loan program provides financing to students and their 

parents to help students obtain postsecondary education. This program is 

currently the largest federal direct loan program with $912 billion in 

outstanding loans as of June 2016.4 Under this program, Education 

issues several types of student loans described in the following sidebar.

 4 Direct loans are a disbursement of funds by the federal government to a nonfederal 

borrower under a contract that requires repayment. Guaranteed loans are issued by 

nonfederal lenders and guaranteed or insured by the federal government. The federal 

government previously offered student loan guarantees through the Federal Family 

Education Loan program. While the SAFRA Act terminated the authority to make or insure 

new loans under this program as of June 30, 2010, there was $343 billion of outstanding 

Federal Family Education Loan debt as of June 2016, some of which continues to be held 

by private lenders. (Some loans were turned over to Education following the 2008 

economic downturn, and others have defaulted and are being collected by a guarantee 

agency or Education.) Pub. L. No. 111-152, tit. II, § 2201, 124 Stat. 1029, 1074 (2010).

Background

Direct Loan Repayment 

Plans
Page 4 GAO-17-22 Income Driven Repayment Plan Costs

Education offers a variety of repayment plans for Direct Loan borrowers: 

Standard, Graduated, Extended, and Income-Driven. Income-Driven 

Repayment (IDR) is an umbrella term that describes a number of 

repayment plans available to Direct Loan borrowers who meet specific 

eligibility requirements, as seen in figure 1. Unlike the Standard, 

Graduated, and Extended repayment plans, IDR plans offer loan 

forgiveness at the end of the repayment term. Additionally, their 

repayment terms are longer than under the Standard and Graduated 

plans, which are set at 10 years for non-consolidated loans.

William D. Ford Federal Direct Loan Types

Subsidized Stafford Loans: Available only to 

undergraduate students with financial need 

(generally the difference between their cost of 

attendance and a measure of their ability to 

pay, known as expected family contribution). 

The interest rate as of July 1, 2016 is 3.76 

percent. Borrowers are not responsible for 

paying interest on these loans while in school 

and during certain periods of deferment. 

Unsubsidized Stafford Loans: Available 

both to undergraduate and graduate school 

students irrespective of financial need. 

Interest rates as of July 1, 2016 are 3.76 

percent for undergraduates and 5.31 percent 

for graduate school borrowers. Borrowers 

must pay all interest on these loans.

PLUS Loans: Available to graduate student 

borrowers and parents of dependent 

undergraduates. The interest rate as of July 1, 

2016, is 6.31 percent. Borrowers must pay all 

interest on these loans.

Consolidation Loans: Available to student 

and parent borrowers wanting to combine 

multiple federal student loans (including those 

listed above) into one loan. Repayment 

periods are extended up to 30 years, thereby 

lowering monthly payments. Interest rates are 

equal to the weighted average of the 

underlying loans.

Source: GAO (Summary of U.S. Department of Education 

William D. Ford Federal Direct Loan features) | GAO-17-22
Page 5 GAO-17-22 Income Driven Repayment Plan Costs

Figure 1: Direct Loan Repayment Plans

Note: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

a

Defaulted loans and PLUS loans made to parents of dependent undergraduates (Parent PLUS 

loans) are ineligible for Income-Driven Repayment plans. In general, default occurs when a borrower 

reaches 270 days of delinquency.

b

Monthly payments for Income-Driven Repayment plans are generally set as a proportion of the 

borrower’s discretionary income, which is defined as adjusted gross income exceeding 100 percent of 

the federal poverty guideline for the Income-Contingent Repayment plan, and 150 percent of the 

guideline for all other plans. (Borrowers without discretionary income pay $0.)

c

Repayment term may be extended to up to 30 years for Consolidation loans (which are available to 

borrowers wishing to combine multiple federal student loans into one loan) depending on the amount.

d

Borrowers pay what would be owed under on a fixed 12-year repayment term if less than what would 

be owed based on discretionary income. The fixed 12-year repayment amount is adjusted according 

to income.

e

Borrowers are eligible if their annual Standard 10-year repayment amount exceeds their repayment 

amount under the plan.

f

Payments cannot rise above the Standard 10-year repayment amount.

g

Borrower must not have an outstanding balance on certain other federal student loans issued prior to 

October 1, 2007.

h

Maximum repayment term is 20 years for borrowers with undergraduate loans and 25 years for 

borrowers with loans for graduate education.
Page 6 GAO-17-22 Income Driven Repayment Plan Costs

Borrowers in IDR plans generally have lower monthly payments 

compared to the Standard 10-year repayment plan.5 They may also pay 

less in the long term than they would under the Standard 10-year 

repayment plan due to the opportunity for eventual loan forgiveness. 

However, some borrowers may pay more. Borrowers in IDR plans can 

ultimately pay more in interest on their loans than they would under the 

Standard 10-year repayment plan due to longer repayment periods. 

Some borrowers will also fully repay their loans before their IDR plan 

repayment term ends and, therefore, not receive forgiveness. 

Additionally, under current tax law any amount forgiven under these plans 

is subject to federal income tax.

In addition to making monthly payments more manageable (and 

eventually reducing the total amount owed for some borrowers receiving 

forgiveness), IDR plans may also reduce the risk of default. Borrowers 

who default on student loans face serious consequences, including 

damaged credit ratings and difficulty obtaining affordable credit in the 

future.6 In 2015, we reported that borrowers in two IDR plans had much 

lower default rates than borrowers in the Standard repayment plan.7

Specifically, among borrowers who entered repayment from fiscal year 

2010 through fiscal year 2014, less than 1 percent of borrowers in the 

Income-Based Repayment and Pay As You Earn had defaulted on their 

loan, compared to 14 percent in the Standard repayment plan.

To participate in an IDR plan, borrowers must provide documentation of 

their adjusted gross income (which we generally refer to as income in this 

report) to their loan servicer and certify their family size for an eligibility 

determination.8 Borrowers must recertify this information annually, which 

is used to update the borrower’s monthly payment amount. A borrower 

 5 There are five IDR plans that Education has made available borrowers: IncomeContingent, Pay As You Earn, Revised Pay As You Earn, and two Income-Based plans. 

To differentiate between the two Income-based plans which provide different benefits to 

borrowers, in this report we refer to the newer plan, implemented in 2014, as the New 

Income-Based Repayment plan. 

6 The federal government also incurs costs to collect on defaulted loans, although it has 

strong collection powers.

7 GAO-15-663.

8 For most IDR plans, spousal income is only considered in payment calculations if the 

borrower files taxes jointly with his or her spouse; however, spousal income is considered 

when calculating payments under the Revised Pay As You Earn plan regardless of 

whether the borrower filed jointly or separately.
Page 7 GAO-17-22 Income Driven Repayment Plan Costs

who fails to provide updated income information can remain in an IDR 

plan in order to qualify for future loan forgiveness, but their monthly 

payments will no longer be based on their income. Rather, payments will 

generally revert to the amount that would be owed under the Standard 

10-year repayment plan until the borrower submits the required 

information.

Borrowers who work in public service may lower their long-term loan 

costs by participating in the Public Service Loan Forgiveness (PSLF) 

program while repaying their loans through an IDR plan.9 Beginning in 

October 2017, borrowers eligible for PSLF can have their remaining 

Direct Loan balances forgiven after at least 10 years of payments in 

eligible repayment plans, generally an IDR plan or the Standard 10-year 

repayment plan.10 As we recently reported, PSLF may provide substantial 

savings over the life of the loan for qualifying borrowers in IDR plans 

compared to what they would pay without the PSLF benefit.11 In contrast, 

borrowers in the Standard 10-year repayment plan would pay their loans 

in full by the time they were eligible for forgiveness under PSLF. (See 

figure 2.)

 9 See 34 C.F.R. § 685.219. Qualified public service organizations include those in federal, 

state, local government; 501(c)(3) nonprofits; and other nonprofit organizations providing a 

variety of public services.

10 Eligible borrowers may receive forgiveness after making 120 on-time payments in an 

IDR plan or the Standard plan (which generally takes at least 10 years) while employed 

full-time by a public service organization. Borrowers in another payment plan may also 

participate if the borrower’s payment amounts equal or exceed the 10-year Standard 

payment amount. Borrowers must still be working for a qualifying organization when they 

apply for and receive forgiveness.

11 GAO-15-663.
Page 8 GAO-17-22 Income Driven Repayment Plan Costs

Figure 2: Amount Paid by Hypothetical Borrower with Public Service Loan 

Forgiveness, under a Sample Income-Driven Repayment Plan and the Standard 10-

Year Repayment Plan

Notes: The Public Service Loan Forgiveness program allows borrowers employed full-time by a public 

service organization to apply for forgiveness after making 120 on-time payments in an Income-Driven 

Repayment plan or the Standard 10-year repayment plan.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

This example assumes about $60,000 borrowed (rounded from $59,978) to reflect the approximate 

median loan amount of borrowers with employment and loans certified for Public Service Loan 

Forgiveness in 2015. This analysis illustrates the amount paid by the borrower. It does not reflect the 

total cost to the government of making the loan, which is calculated on a net present value basis and 

includes other factors that could increase or decrease the government’s total cost, such as fees paid 

by borrowers.

a

The Income-Driven Repayment plan used for this example is the Income-Based Repayment plan, 

which bases repayment amounts on 15 percent of the borrower’s discretionary income and has a 

repayment period of up to 25 years.

Participation in IDR plans has grown over time, as seen in figure 3. 

According to currently available quarterly data released by Education, the 

percent of outstanding Direct Loan dollars being repaid through IDR plans 

doubled from June 2013 to June 2016 to 40 percent.12 The percent of 

borrowers participating in IDR plans more than doubled over the same 

 12 Amounts include loan dollars in deferment and forbearance. Borrowers may defer 

repaying their loans for certain reasons, such as enrollment in college or an economic 

hardship. Borrowers who do not qualify for deferment may be granted a forbearance for 

up to 12 months for reasons including illness and National Guard activation. 
Page 9 GAO-17-22 Income Driven Repayment Plan Costs

time period to 24 percent.13 However, as we previously reported, some 

borrowers who could benefit from IDR plans may still not be aware of 

them.14

Figure 3: Direct Loan Dollars and Borrowers in Income-Driven Repayment Plans, Third Quarter Fiscal Year 2013 through Third 

Quarter Fiscal Year 2016

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

Includes loan dollars in deferment and forbearance, periods in which borrowers may temporarily 

cease repaying their loans for approved reasons, such as enrollment in college or economic hardship.

b

Includes borrowers in deferment and forbearance.

 13 The proportion of outstanding loan dollars being repaid through IDR plans is higher 

than the proportion of borrowers in IDR plans because borrowers in IDR plans have higher 

loan balances on average than borrowers in other repayment plans. In our 2015 report, 

we found that 64 percent of borrowers in the Income-Based Repayment plan and 45 

percent of borrowers in the Pay As You Earn repayment plan had borrowed more than 

$30,000, compared to 23 percent of borrowers in the Standard repayment plan. 

GAO-15-663.

14 As a result, we recommended that Education take steps to ensure that it consistently 

informs borrowers of these options. GAO-15-663. 
Page 10 GAO-17-22 Income Driven Repayment Plan Costs

As the variety of IDR options available to borrowers has expanded in 

recent years, there have been numerous reform proposals with a variety 

of goals ranging from simplifying IDR plans and better targeting their 

benefits to changing the tax treatment of IDR plan loan forgiveness. For 

instance, recent President’s budgets have proposed limiting the available 

IDR plan options for new borrowers to one revised IDR plan designed to 

better target benefits to the highest-need borrowers.15 A proposal has 

been introduced in the current Congress that would similarly make only 

one IDR plan available to new borrowers and target more generous 

benefits to those with lower incomes.16 Additional legislative proposals 

would automatically enroll all borrowers in a version of income-driven 

repayment and withhold payments from borrowers’ paychecks.17 Other 

proposed legislation would allow for automatic annual recertification of 

borrowers’ incomes and automatically place certain delinquent borrowers 

in an IDR plan.18 Another proposal would expand IDR plan eligibility to 

parents with Parent PLUS loans for dependent students.19 Legislation has 

 15 Similar to the new Revised Pay As You Earn plan, borrowers’ payment amounts under 

this plan could rise above the Standard 10-year payment amount. Loan forgiveness under 

PSLF would also be capped to discourage overborrowing, and payments made under 

non-IDR plans could not be applied toward PSLF to ensure that forgiveness is targeted to 

borrowers with the greatest need. This proposal has not been enacted.

16 Senate Bill 85 would establish a simplified IDR plan for all new borrowers that would set 

borrower payment amounts as equal to 10 percent of discretionary income up to $25,000 

and 15 percent above that threshold for borrowers with higher incomes. Repay Act of 

2015, S. 85, 114th Cong. § 2. House Bill 4652 would also make only one IDR plan 

available to new borrowers, but payment amounts would not escalate above 10 percent of 

discretionary income for borrowers with higher incomes. Clarity in Lending for Education 

and Repayment Act, H.R. 4652, 114th Cong. § 2 (2016).

17 Senate Bill 2456 and House Bill 3752, in addition to establishing a new income 

dependent education assistance loan program, would establish a new income-driven 

repayment plan and automatic withholding of 10 and 15 percent, respectively, of the 

borrower’s wages above the borrower’s exemption amounts. Dynamic Repayment Act of 

2016, S. 2456, 114th Cong. §§ 2-3; Earnings Contingent Education Loans Act of 2015, 

H.R. 3752, 114th Cong. §§ 2-3.

18 SIMPLE Act, H.R. 5962, 114th Cong. §§ 2-3 (2016). 

19 Parent Plus Improvement Act of 2016, H.R. 4661, 114th Cong. § 5.

Proposals to Modify IDR 

Plans
Page 11 GAO-17-22 Income Driven Repayment Plan Costs

also been introduced that would exempt student loan forgiveness under 

certain IDR plans from being taxed as income.20

As required by the Federal Credit Reform Act of 1990, Education 

estimates the long-term costs, known as subsidy costs, of the Direct Loan 

program annually for inclusion in the President’s budget.

21 For Direct 

Loans, subsidy costs represent the estimated cost to the government of 

extending credit over the life of the loan, excluding administrative costs.22

(In this report, we generally refer to subsidy costs as “costs.”) Subsidy 

cost estimates are calculated based on the net present value of lifetime 

estimated cash flows to and from the government associated with these 

loans.23 For Direct Loans, cash flows from the government include loan 

disbursements to borrowers, while cash flows to the government include 

repayments of loan principal, interest and fee payments, and recoveries 

on defaulted loans. A positive subsidy cost estimate indicates that the 

government anticipates a net cost, while a negative subsidy cost estimate 

indicates that the government anticipates generating net subsidy income, 

not counting administrative costs.

Education also annually reestimates the cost of loans made in each fiscal 

year, known as a loan cohort. Reestimates take into account actual loan 

performance as well as changes in assumptions about future 

performance, such as how many borrowers will default or how many will 

participate in different repayment plans. Reestimates may result in 

increases or decreases in subsidy cost estimates. No loan cohorts have 

been fully repaid, and estimates for all cohorts continue to be updated 

annually in the President’s budget.

 20 The Student Loan Tax Relief Act and the Student Loan Tax Debt Relief Act would both 

exempt student loans discharged through participation in the Income-Based Repayment 

and Income-Contingent Repayment plans from being taxed as income. Student Loan Tax 

Relief Act, S. 3266, 114th Cong. § 2 (2016). Student Loan Tax Debt Relief Act, H.R. 2429, 

114th Cong. §2 (2015).

21 Pub. L. No. 101-508, § 13201(a), 104 Stat. 1388, 1388-609 (Nov. 5, 1990), classified, 

as amended, at 2 U.S.C. §§ 661-661f.

22 Administrative costs are loan program expenses excluded from subsidy cost 

calculations, such as costs related to processing loan applications or servicing existing 

loans. 

23 The net present value of expected future cash flows over the life of each loan cohort is 

calculated using a discount rate, which is also generally the rate Education pays Treasury 

to finance its lending.

Subsidy Cost Estimates
Page 12 GAO-17-22 Income Driven Repayment Plan Costs

To estimate subsidy costs, Education has developed a student loan cash 

flow model (the student loan model) that incorporates a variety of 

assumptions about the future. These assumptions concern various 

aspects of loan performance, such as how many borrowers will prepay 

their loans, how many borrowers will default, and how successful default 

collection activities will be. Education uses a supplementary model to 

assist with the task of estimating repayment patterns for loans in IDR 

plans. (See appendix II for a description of how this supplementary model 

for estimating IDR plan repayment patterns works.) In the spring of 2015, 

Education initiated a redesign of its overall student loan model with 

technical support from Treasury and guidance from OMB in what is 

anticipated to be a multi-year project.

Through our analysis of data underlying the President’s fiscal year 2017 

budget, we found that Education estimates that Direct Loans in IDR plans 

will cost the government about $74 billion over their repayment term.24

More specifically, Education estimates that about $355 billion in loans will 

enter an IDR plan, and $281 billion will ultimately be paid by borrowers.25

 24 This estimate of IDR plan costs includes the total volume of Direct Loans issued in past 

cohorts and loans estimated to be issued in the 2016 and 2017 cohorts that Education 

expects to be repaid in an IDR plan. While the first cohort of Direct Loans was issued in 

1994, Education begins estimating IDR subsidy costs with the 1995 loan cohort. 

25 The estimated $355 billion that Education expects to be repaid in an IDR plan includes 

the original loan volume estimate published in the President’s fiscal year 2017 budget for 

the 2017 cohort only. Loan volume estimates for all other cohorts were provided by 

Education and are updated to remove loans that are originated, but may not be disbursed 

to borrowers (e.g., when a borrower decides not to attend school.) The $355 billion in IDR 

plan loan volume accounts for 26 percent of the $1.4 trillion total in Direct Loans 

Education estimates will have been issued from fiscal year 1994 through the end of fiscal 

year 2017. 

Education’s Budget 

Estimates of IDR Plan 

Costs Are Growing, 

but Actual Costs Will 

Not Be Known for 

Many Years

Education Estimates That 

Loans in IDR Plans Will 

Have Substantial Costs to 

the Government
Page 13 GAO-17-22 Income Driven Repayment Plan Costs

As a result, Education expects a 21 percent subsidy rate, or an average 

cost to the government of $21 per every $100 in loans disbursed.26 See 

figure 4.

Figure 4: Current Estimated Subsidy Costs of All Direct Loans in Income-Driven 

Repayment Plans (Fiscal Year 2017 Budget)

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

Due to the timing of the fiscal year 2017 budget, the amount of loans made to borrowers in fiscal 

years 2016 and 2017 are estimated.

b

The amount not paid is the estimated subsidy cost.

All of the Direct Loan types eligible to participate in IDR plans contribute 

to the $74 billion Education estimates the government will incur in subsidy 

costs. Of these loan types, Consolidation loans are estimated to be the 

most costly, as seen in figure 5. Consolidation loans, which combine 

multiple existing federal student loans into one loan, are larger on 

average than other types of Direct Loans, and may have higher balances 

forgiven at the end of their repayment term. Further, Education officials 

said that some borrowers in IDR plans with Consolidation loans have 

higher default risks than other borrowers, which leads to higher expected 

 26 This 21 percent subsidy rate is calculated by dividing the estimated subsidy cost of $74 

billion by the estimated $355 billion in loan volume. Presented another way, the total 

estimated subsidy cost of $74 billion equals the 21 percent subsidy rate multiplied by the 

$355 billion loan volume estimate. 
Page 14 GAO-17-22 Income Driven Repayment Plan Costs

subsidy rates for these loans.27 Education estimates lower subsidy costs 

for Subsidized and Unsubsidized Stafford and PLUS loans for graduate 

student borrowers (known as Grad PLUS loans) than Consolidation 

loans.28

Figure 5: Current Estimated Subsidy Costs of All Direct Loans in Income-Driven Repayment Plans, by Loan Type (Fiscal Year 

2017 Budget)

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

 27 Specifically, borrowers who have defaulted on their federal student loans may 

consolidate their defaulted loans in order to exit default status. Education officials stated 

that such borrowers almost always enter IDR plans, and are more likely to default on their 

new Consolidation loans in the future than other borrowers, resulting in higher expected 

subsidy rates.

28 PLUS loans available to parents of dependent undergraduates (known as Parent PLUS 

loans) are not eligible for IDR plans.
Page 15 GAO-17-22 Income Driven Repayment Plan Costs

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

Education issues four types of Direct Loans: (1) Subsidized Stafford loans are available to 

undergraduate borrowers with financial need. (2) Unsubsidized Stafford loans are available to 

undergraduate and graduate student borrowers, regardless of financial need. (3) PLUS loans are 

available to graduate student borrowers as Grad PLUS loans and parents of dependent 

undergraduates as Parent PLUS loans. (Grad PLUS loans are eligible for Income Driven Repayment 

plans, while Parent PLUS loans are not.) (4) Consolidation loans are available to borrowers wishing 

to combine multiple existing federal student loans into one loan.

a

Direct Loan subsidy costs represent the estimated cost to the government of extending credit over 

the life of the loan, excluding administrative costs. They can be calculated by multiplying the rate of 

the expected subsidy by the volume of loans estimated to be made in a given year.

As figure 6 shows, Education estimates higher subsidy costs for loans 

participating in IDR plans from more recent loan cohorts compared to 

loans from older cohorts.

Figure 6: Current Estimated Subsidy Costs of Direct Loans in Income-Driven Repayment Plans, by Loan Cohort (Fiscal Year 

2017 Budget)

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs. Subsidy costs 

are calculated separately for each group of loans made in a particular fiscal year—referred to as a 

loan cohort.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.
Page 16 GAO-17-22 Income Driven Repayment Plan Costs

a

The subsidy cost estimate for the 2017 loan cohort uses that cohort’s original loan volume estimate 

contained in the President’s fiscal year 2017 budget. Estimates for all other cohorts use updated loan 

volume estimates provided by Education that exclude loans that are originated but may not be 

disbursed to borrowers (e.g., when borrowers decide not to attend school).

Figure 7 shows that these higher estimated costs track closely with the 

higher loan volume (or total loan dollars) estimated to enter IDR plans for 

more recent loan cohorts. Education officials confirmed that this higher 

estimated loan volume is likely related to three key factors:

• more generous IDR plans available for loans issued since fiscal year 

2012,29

• increased efforts to make borrowers aware of IDR plans, and

• increased overall volume of Direct Loans issued as a result of 

increased college attendance following the 2008 economic downturn 

and the end of the Federal Family Education Loan program (which 

guaranteed federal student loans issued by private lenders) in 2010.30

 29 These plans—New Income-Based Repayment and Pay As You Earn—limit monthly 

payments to 10 percent of discretionary income and offer loan forgiveness after 20 years. 

While the new Revised Pay As You Earn plan is available to all cohorts and shares some 

characteristics with these plans, it has other provisions that make it less generous. 

Education officials stated that they do not expect borrowers with loans issued in older 

cohorts to take advantage of Revised Pay As You Earn.

30 Under the Federal Family Education Loan Program, Education guarantees loans that 

were issued by private lenders by committing to cover costs related to loan defaults and 

other write-offs. The SAFRA Act terminated the authority to make or insure new Federal 

Family Education Loans after June 30, 2010. Pub. L. No. 111-152, tit. II, § 2201, 124 Stat. 

1029, 1074 (2010).
Page 17 GAO-17-22 Income Driven Repayment Plan Costs

Figure 7: Current Estimated Direct Loan Volume in Income-Driven Repayment Plans, by Loan Cohort (Fiscal Year 2017 

Budget)

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

Loan volume is estimated separately for each group of loans made in a particular fiscal year—

referred to as a loan cohort.

a

The volume of loans issued under the Direct Loan program expanded dramatically after the SAFRA 

Act terminated the authority to make or insure new Federal Family Education Loans on June 30, 

2010.

b

In general, loans from the 2012 cohort forward are eligible for the most generous Income-Driven 

Repayment plans.

c

The loan volume estimate for the 2017 loan cohort is the original estimate contained in the 

President’s fiscal year 2017 budget. Estimates for all other loan cohorts are updated by Education to 

exclude loans that are originated but may not be disbursed to borrowers (e.g., when borrowers decide 

not to attend school).

While borrowers in IDR plans in more recent loan cohorts have access to 

more generous benefits (which could lead to higher government costs), 

these loan cohorts do not have higher estimated subsidy rates than 

earlier loan cohorts, as seen in figure 8. Direct Loan subsidy rates 

fluctuate according to changes in a variety of factors, and are particularly 
Page 18 GAO-17-22 Income Driven Repayment Plan Costs

sensitive to changes in government borrowing costs and borrower interest 

rates.31 As we previously reported, government borrowing costs fell 

sharply in 2009, due to historically low interest rates of Treasury 

securities.32 This phenomenon contributed to lower overall estimated 

subsidy rates for Direct Loans issued following the 2008 loan cohort.

Figure 8: Current Estimated Subsidy Rates of Direct Loans in Income-Driven Repayment Plans, by Loan Cohort (Fiscal Year 

2017 Budget)

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy rates represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs, and 

expressed as a percentage. Subsidy rates are calculated separately for each group of loans made in 

a particular fiscal year—referred to as a loan cohort.

 31 As we have previously reported, the difference, or “spread,” between the government’s 

cost of borrowing and borrower interest rates is a key factor in determining subsidy costs. 

Education incurs borrowing costs on funds provided by Treasury to finance its lending 

through the Direct Loan program. These costs are reflected in subsidy cost estimates 

through the discount rate used to determine the present value of expected future cash 

flows for each loan cohort. GAO, Federal Student Loans: Borrower Interest Rates Cannot 

Be Set in Advance to Precisely and Consistently Balance Federal Revenues and Costs, 

GAO-14-234 (Washington, D.C.: Jan. 31, 2014).

32 Average borrower interest rates also fell during this time period, but less sharply than 

government borrowing costs. GAO-14-234.
Page 19 GAO-17-22 Income Driven Repayment Plan Costs

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

In 2014, we reported that government borrowing costs fell sharply in 2009 and remained low for the 

2009 through 2012 cohorts. Over this period, weighted average interest rates charged to borrowers 

declined more gradually, leading to an increased “spread” between government borrowing costs and 

borrower interest rates. We also reported that Direct Loan costs are particularly sensitive to changes 

in the government’s cost of borrowing. GAO-14-234

b

In general, loans from the 2012 cohort forward are eligible for the most generous Income-Driven 

Repayment plans.

Education has raised its estimates of IDR plan costs in recent years 

through its annual process of revising past budget estimates to account 

for actual loan performance and updated assumptions about future loan 

performance. In figure 9, we compare Education’s original IDR plan 

subsidy cost estimates for loans issued in recent cohorts to its current 

subsidy cost estimates prepared for the President’s fiscal year 2017 

budget.33 Our results show that current estimated IDR plan costs are 

more than double what was originally expected for these cohorts. For 

instance, Education originally estimated in the President’s fiscal year 

2012 budget that IDR plan costs for the 2012 cohort would be $1.2 billion. 

As of the fiscal year 2017 budget, Education’s estimate had grown to $3 

billion.34 (We also compared Education’s fiscal year 2016 IDR plan 

budget estimates to its fiscal year 2017 budget estimates to illustrate how 

Education’s cost estimates changed over one budget cycle, and present 

the results of that analysis in appendix IV.)

 33 The current subsidy cost estimate refers to total updated subsidy costs reflecting data 

and assumptions underlying the President’s fiscal year 2017 budget.

34Original IDR subsidy cost estimates are not available for the 1994-2008 cohorts because 

they were not published in past budgets, and Education did not maintain the information 

necessary to easily identify such past estimates. 

Education’s Current IDR 

Subsidy Cost Estimates 

Are Higher than Previously 

Expected, but Actual 

Costs Will Not Be Known 

for Many Years
Page 20 GAO-17-22 Income Driven Repayment Plan Costs

Figure 9: Original and Current (Fiscal Year 2017 Budget) Estimated Subsidy Costs 

of Direct Loans in Income-Driven Repayment Plans, 2009-2016 Loan Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs. Subsidy costs 

are calculated separately for each group of loans made in a particular fiscal year—referred to as a 

loan cohort.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

The first available subsidy cost estimate for the 2009 cohort is its third-year estimate published in the 

President’s fiscal year 2011 budget.

b

The first available subsidy cost estimate for the 2010 cohort is its second-year estimate published in 

the President’s fiscal year 2011 budget.

c

Original subsidy cost estimates use the original loan volume estimates contained in prior President’s 

budgets.

d

Current estimates use updated loan volume estimates provided by Education that exclude loans that 

are originated but may not be disbursed to borrowers (e.g., when borrowers decide not to attend 

school).

As seen in figure 10, subsidy rates have remained relatively stable from 

original to current estimates, while the volume of loans expected to be 

repaid in IDR plans has increased dramatically. Because Education 

expects loans in IDR pans to have positive subsidy rates (or to have costs 
Page 21 GAO-17-22 Income Driven Repayment Plan Costs

to the government), this growth in estimated loan volume has been 

accompanied by increasing estimates of IDR plan costs.

Figure 10: Original and Current (Fiscal Year 2017 Budget) Estimated Loan Volume and Subsidy Rates for Direct Loans in 

Income-Driven Repayment Plans, 2009-2016 Loan Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loans subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs. A subsidy rate 

is the cost per dollar of credit assistance, determined by dividing the subsidy cost by the volume of 

loans estimated to be made in a given year. Subsidy costs are calculated separately for each group

of loans made in a particular fiscal year—referred to as a loan cohort.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

The first available subsidy cost estimate for the 2009 cohort is its third-year estimate published in the 

President’s fiscal year 2011 budget.

b

The first available subsidy cost estimate for the 2010 cohort is its second-year estimate published in 

the President’s fiscal year 2011 budget.

c

Original subsidy cost estimates use original loan volume estimates contained in prior President’s 

budgets.

d

Current estimates use updated loan volume estimates that exclude loans that are originated but may 

not be disbursed to borrowers (e.g., when borrowers decide not to attend school).
Page 22 GAO-17-22 Income Driven Repayment Plan Costs

According to our data analysis and interviews with Education officials, 

Education may have originally underestimated the volume of loans that 

would enter IDR plans from these cohorts for several reasons:

1. Education did not include Grad PLUS loans in its IDR plan subsidy 

estimates until the fiscal year 2015 budget, even though Grad PLUS 

loans have been eligible for IDR plans since they were first issued in 

2006. Education officials said that they had to make a model 

adjustment in order to include Grad PLUS loans in IDR estimates. 

Prior to this adjustment they assumed all Grad PLUS loans would be 

repaid in other repayment plans.

2. Policy changes made IDR plans more generous and available to more 

borrowers after Education originally estimated costs for some cohorts. 

For example, the Pay As You Earn repayment plan was implemented 

in fiscal year 2013 and retroactively made more generous benefits 

available to certain borrowers with loans issued as early as the 2008 

cohort.

3. While some eligible borrowers still may not be aware of IDR plans, 

participation rates are growing, and officials responsible for budget 

estimates may not have adequately anticipated participation growth.

While we previously reported that there are substantial challenges 

associated with estimating Direct Loan subsidy costs, these challenges 

are increased for Direct Loans in IDR plans due to their complex features 

and other uncertainties.35 It is difficult for Education to estimate which 

borrowers have incomes low enough to benefit from or be eligible for IDR 

plans because Education does not collect income information for all 

Direct Loan borrowers. 36 Additionally, IDR plan participation rates are 

difficult to predict. While participation has been growing rapidly in recent 

years, it is unclear at what rate it will continue to grow. It is also 

challenging to predict how the incomes of borrowers already participating 

in IDR plans will change over time and how much loan principal will 

ultimately be forgiven. Further complicating Education’s task is the fact 

that the large majority of loans expected to be repaid in IDR plans are 

from recent cohorts, and many borrowers in these cohorts have not yet 

started repaying their loans. As a result, there is limited actual repayment 

 35 GAO-14-234.

36 Education does not have access to data necessary to identify borrowers who would 

qualify for or benefit from an IDR plan. To estimate eligibility rates, Education officials use 

eligibility data they obtained from a Treasury analysis of Direct Loan borrowers eligible for 

certain IDR plans as of September 2012.
Page 23 GAO-17-22 Income Driven Repayment Plan Costs

data available to inform Education’s estimates. Further, no borrower has 

received loan forgiveness under IDR plans.

Volatility in subsidy cost estimates is generally expected to be greatest 

early in the life of a loan cohort, and to decrease over time as more actual 

repayment data are incorporated into estimates. When we compared 

original, third-year, and currently estimated IDR plan subsidy cost 

estimates for several recent cohorts, we found that third-year estimates 

were generally closer to current estimated costs than the original, as 

figure 11 illustrates. However, estimates will continue to change over 

time, and actual subsidy costs of a loan cohort will not be known until all 

loans in the cohort have been repaid, which may take 40 years.37

 37 Education officials recommended that we use each cohort’s third-year estimate as a 

basis for our comparison to current estimated costs for two reasons: (1) the discount rate 

(which reflects government borrowing costs and strongly influences subsidy costs) has 

been finalized, and (2) the volume of loans issued in the cohort is known. While 

Education’s original subsidy cost and loan volume estimates are made before discount 

rates and loan volumes are known, these numbers reflect Education’s best estimates 

about costs associated with a new cohort of loans when the President’s budget is 

developed and is presented to Congress as a part of the federal budget process. 
Page 24 GAO-17-22 Income Driven Repayment Plan Costs

Figure 11: Original, Third Year, and Current (Fiscal Year 2017 Budget) Estimated 

Subsidy Costs for Direct Loans in Income-Driven Repayment Plans, 2011-2014 Loan 

Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs. Subsidy costs 

are calculated separately for each group of loans made in a particular fiscal year—referred to as a 

loan cohort.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

Original subsidy cost estimates use original loan volume estimates contained in prior President’s 

budgets.

b

Third year and current estimates use updated loan volume estimates that exclude loans that are 

originated but may not be disbursed to borrowers (e.g., when borrowers decide not to attend school).
Page 25 GAO-17-22 Income Driven Repayment Plan Costs

While loans in IDR plans are expected to have long-term costs to the 

government, loans in other repayment plans (Standard, Graduated, and 

Extended) are expected to generate greater subsidy income, as seen in 

figure 12.38 Figure 12 also illustrates that Education currently expects 

income to be higher for more recent cohorts than older cohorts.39

However, as mentioned previously, subsidy cost estimates change over 

time, and the actual costs or income attributable to any Direct Loan cohort 

will not be known until all loans in the cohort are repaid.

 38 Unlike IDR plans, Standard, Extended, and Graduated plans do not offer borrowers loan 

forgiveness or monthly payments tied to income and family size. 

39 Higher projected income for these cohorts is partly attributable to declines in the 

government’s cost of borrowing following 2008 and the dramatic expansion of the Direct 

Loan program in the years that followed.

Current Estimated IDR 

Plan Costs Are Offset by 

Greater Estimated Income 

from Loans in Other 

Repayment Plans
Page 26 GAO-17-22 Income Driven Repayment Plan Costs

Figure 12: Current Estimated Subsidy Costs and Income for Direct Loans, by Loan Cohort and Repayment Plan (Fiscal Year 

2017 Budget)

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs. Subsidy costs 

are calculated separately for each group of loans made in a particular fiscal year—referred to as a 

loan cohort.

a

A subsidy income results if the present value of estimated payments from borrowers exceeds the 

present value of disbursements to borrowers.

b

A subsidy costs results if the present value of disbursements to borrowers exceeds the present value 

of estimated payments from borrowers.

c

Education offers a variety of repayment plans for Direct Loan borrowers: (1) Income-Driven 

Repayment plans tie borrowers’ monthly payments to their incomes, lengthen repayment periods 

beyond the standard 10 years, and offer forgiveness at the end of the repayment period. (2) Standard 

repayment fixes borrowers’ monthly payments over a repayment term of 10 years. (3) Graduated 

repayment offers borrowers payments that gradually increase over a 10 year repayment term. (4) 

Extended repayment extends borrowers’ repayment term up to 25 years.
Page 27 GAO-17-22 Income Driven Repayment Plan Costs

d

Education estimates costs of loans in Income-Driven Repayment plans for loans made in fiscal years 

1995 through 2017 only. It estimates costs of loans in all other repayment plans for loans made in 

fiscal years 1994 through 2017.

e

The subsidy cost and income estimates for the 2017 loan cohort use that cohort’s original loan 

volume estimate contained in the President’s fiscal year 2017 budget. Estimates for all other cohorts 

use updated loan volume estimates provided by Education that exclude loans that are originated but 

may not be disbursed to borrowers (e.g., when borrowers decide not to attend school).

Subsidy income estimates for loans participating in non-IDR plans vary by 

loan type and repayment plan. Unsubsidized Stafford and PLUS loans 

participating in the Standard 10-year repayment plan are estimated to 

result in the greatest subsidy income to the government. This could be 

due in part to the higher interest rates charged to borrowers with 

Unsubsidized Stafford and PLUS loans compared to Subsidized Stafford 

loans, as well as a higher volume of loans participating in Standard 

repayment compared to other repayment plan options.40 See figure 13.

 40 Grad PLUS loans are the only PLUS loans eligible to participate in IDR plans, but 

Parent PLUS loans and Grad PLUS loans are both eligible to participate in Standard, 

Extended, and Graduated repayment plans. Like Grad PLUS loans, Parent PLUS loans 

have a higher interest rate than other loan types. Subsidized Stafford loans and 

unsubsidized loans to undergraduate school borrowers pay the same interest rate; 

however, the interest rate on Unsubsidized Stafford loans made to graduate school 

borrowers is higher. 
Page 28 GAO-17-22 Income Driven Repayment Plan Costs

Figure 13: Current Estimated Subsidy Costs and Income for All Direct Loans, by Loan Type and Repayment Plan (Fiscal Year 

2017 Budget)

Note: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs.

a

Education issues four types of Direct Loans: (1) Subsidized Stafford loans are available to 

undergraduate borrowers with financial need. (2) Unsubsidized Stafford loans are available to 

undergraduate and graduate student borrowers, regardless of financial need. (3) PLUS loans are 

available to graduate student borrowers as Grad PLUS loans and parents of dependent 

undergraduates as Parent PLUS loans. (Grad PLUS loans are eligible for Income Driven Repayment 

plans, while Parent PLUS loans are not.) (4) Consolidation loans are available to borrowers wishing 

to combine multiple existing federal student loans into one loan.

b

A subsidy costs results if the present value of loan disbursements to borrowers exceeds the present 

value of estimated payments from borrowers.

c

A subsidy income results if the present value of estimated payments from borrowers exceeds the 

present value of disbursements to borrowers.

d

Education offers a variety of repayment plans for Direct Loan borrowers: (1) Income-Driven 

Repayment plans tie borrowers’ monthly payments to their incomes, lengthen repayment periods 

beyond the standard 10 years, and offer forgiveness at the end of the repayment period. (2) Standard 

repayment fixes borrowers’ monthly payments over a repayment term of 10 years. (3) Graduated 

repayment offers borrowers payments that gradually increase over a 10 year repayment term. (4) 

Extended repayment extends borrowers’ repayment term up to 25 years.

e

Education estimates costs of loans in Income-Driven Repayment plans for loans made in fiscal years 

1995 through 2017 only. It estimates costs of loans in all other repayment plans for loans made in 

fiscal years 1994 through 2017.

Further, as with loans in IDR plans, Education’s estimates of subsidy 

income from loans in non-IDR plans have changed over time and will 

continue to fluctuate as they are updated with actual repayment data and 

revised assumptions about future cash flows. We found that estimated 
Page 29 GAO-17-22 Income Driven Repayment Plan Costs

income associated with loans participating in non-IDR plans increased 

(about $19 billion more) for some cohorts and decreased (about $36 

billion less) for other cohorts when we compared Education’s original and 

current estimates for those cohorts (2009-2015).

While Education currently estimates that loans in IDR plans will have 

costs to the government, these plans are designed to provide relief to 

struggling borrowers, which could indicate that government subsidies may 

be expected. By tying monthly payments to borrowers’ incomes, IDR 

plans help make potentially onerous student debt payments more 

affordable for many individuals. Because these borrowers’ repayment 

amounts may be lower than they otherwise would be, borrowers in IDR 

plans may have more success in making their loan payments than 

borrowers in other plans. As we previously reported, substantially lower 

percentages of participants in the Income-Based Repayment and Pay As 

You Earn repayment plans had defaulted on their loans compared to 

those in the Standard 10-year repayment plan, and the great majority of 

borrowers in these IDR plans were in active repayment status (e.g., not in 

delinquency, default, or forbearance).41 Further, because IDR plans 

attract borrowers experiencing difficulty repaying their loans in other 

plans, increased IDR participation from these borrowers may lead to 

lower subsidy rates for non-IDR plans.

Education’s approach to estimating IDR plan costs has numerous 

weaknesses that may result in unreliable budget estimates. Poor quality 

control practices, such as inadequate model testing, contributed to issues 

we identified. Further, because Education publishes only limited 

information about its estimates, it may be difficult for policymakers to 

assess expected plan costs and consider the potential for alternative 

outcomes.

 41 Specifically, among borrowers who entered repayment from fiscal year 2010 to fiscal 

year 2014, less than 1 percent of Income-Based Repayment and Pay As You Earn 

participants had defaulted on their loan, compared to 14 percent in Standard repayment. 

For this analysis we defined Standard repayment to include borrowers on Extended 

repayment with fixed payments. GAO-15-663.

IDR Plan Budget 

Estimates May Be 

Unreliable Due to 

Limitations in 

Education’s Approach 

and Inadequate 

Quality Control 

Practices
Page 30 GAO-17-22 Income Driven Repayment Plan Costs

Due to several methodological limitations, Education’s approach to 

estimating IDR plan costs may result in unreliable budget estimates. First, 

Education did not adequately assess the reliability of the data it uses to 

forecast borrower incomes over time, or assess the level of error these 

data or its forecasting methods introduced into its IDR plan budget 

estimates. Second, it did not consider how inflation would affect 

borrowers’ incomes over time. Third, Education unrealistically assumes 

that no borrower will fail to recertify their income, which is required of 

borrowers annually to maintain lower income-driven payment amounts. 

Fourth, Education does not account for future growth in IDR plan 

participation rates. Fifth, Education does not produce separate cost 

estimates for each of the five IDR plans currently available to borrowers. 

Finally, Education’s cost estimates for Subsidized Stafford, Unsubsidized 

Stafford, and Grad PLUS loans in IDR plans do not account for likely 

differences in how they will perform over time.

Education’s IDR plan cost estimates are vulnerable to unidentified error 

because Education has not adequately assessed the reliability of the 

estimated borrower income data and methods it uses to forecast borrower 

incomes many years into the future—information that is vital to 

determining how much borrowers will owe and repay on their loans over 

time.42 Education conducted only limited, informal testing to assess the 

data’s reliability, in part because the agency had short timeframes in 

which to develop its approach to estimating IDR plan costs, according to 

officials we interviewed.43 Education did not measure the amount of error 

 42 Because Education does not collect income data on all borrowers repaying their loans, 

officials worked with Treasury to develop a more comprehensive estimated historical 

income dataset to use in its estimation approach. Education first provided Treasury with a 

sample of borrowers with information on their loan activity through September 2013. This 

sample included a limited set of variables including borrowers’ loan type and balances, 

dependency status, family income from the last period the borrower was enrolled in 

school, ages, education levels, and gender. To protect taxpayer privacy, Treasury 

provided Education with historical income estimates for these borrowers that were 

intended to resemble their actual incomes. To do this, Treasury first estimated each 

borrower’s income range (for instance, $34,000 to $50,000) for each year a borrower was 

in repayment from 1996 through 2013. Treasury then randomly selected a dollar value in 

that range for Education to use for estimation purposes. (See appendix III for more details 

on Treasury’s approach.)

43 Education assessed the estimated income data by examining aggregate patterns, such 

as correlations between incomes and key factors like education and borrowing levels. 

Education officials said they conducted limited data reliability assessment because they 

were under pressure to develop their approach quickly to inform negotiated rulemaking on 

the Revised Pay As You Earn IDR plan. The plan’s final regulations were issued October 

30, 2015. 

Education’s Approach to 

Estimating IDR Plan Costs 

May Produce Unreliable 

Budget Estimates

Borrower Income Data and 

Forecasting Methods
Page 31 GAO-17-22 Income Driven Repayment Plan Costs

these data introduced into IDR plan cost estimates to determine whether 

it was acceptable, or if alternative data were needed.44

Through our data reliability testing, we identified patterns in the estimated 

historical income data suggesting reliability problems that could make 

them unacceptable for Education’s purposes. An analysis by Treasury 

(the agency that created the estimated historical income data) indicates 

that the data fluctuate on average by 44 percent more per year than the 

actual income data upon which they were based.45 In figure 14, we 

illustrate this fluctuation for five randomly selected borrowers from the 

estimated dataset over the first 10 years of their repayment period. (See 

appendix III for more information on how these data were estimated and 

our evaluation of them.)

Figure 14: Estimated Historical Incomes for Randomly Selected Sample of Direct 

Loan Borrowers Used in Education’s Approach to Estimating Costs of Loans in 

Income-Driven Repayment Plans, For Each Borrower’s First 10 Years in Repayment

 44 Estimated data and statistical estimation methodologies always generate some amount 

of error, but the amount produced depends on how well suited the data and methods are 

to the task at hand. 

45 This analysis indicated that estimated historical incomes varied by 75 percent a year, 

compared to 52 percent a year in the actual tax data used for the estimation.
Page 32 GAO-17-22 Income Driven Repayment Plan Costs

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

Estimated incomes represent borrowers’ nominal adjusted gross incomes for the first 10 years of loan 

repayments, as estimated by the U.S. Department of the Treasury. Repayment could have occurred 

from tax year 1996 through tax year 2013, depending on when the borrowers entered repayment. 

Dashes in the income series represent years when borrowers were estimated not to have filed tax 

returns. Adjusted gross income can be negative if taxpayers have income deductions or exclusions 

that exceed their gross income. Changes in tax filing status—for instance, from single to married filing 

jointly—do not fully account for variation in individual borrowers’ incomes over time.

Education uses individuals’ estimated historical incomes, such as those 

illustrated in figure 14, to make numerous sequential calculations that 

determine how much each borrower will owe and pay in each year of the 

borrower’s repayment period. While the estimated historical income data 

appeared more reasonable in the aggregate, Education officials 

confirmed that any unusual fluctuations in them at the individual borrower 

level could affect the quality of IDR plan budget estimates.46

In addition to being vulnerable to error associated with the estimated 

historical income data they use, Education’s IDR plan budget estimates 

may further be affected by error associated with the agency’s method for 

forecasting borrowers’ incomes for up to 30 years into the future. The 

accuracy of any forecast—separately from the reliability of the data used 

for forecasting—depends on how well the data and forecasting methods 

can estimate future incomes. However, Education did not assess the 

amount of error in its forecasts of borrower incomes. Until Education 

assesses its forecasting methodology, its IDR plan cost estimates may be 

vulnerable to unidentified error.

Both federal guidance for estimating subsidy costs and Education’s own 

information quality standards emphasize the importance of ensuring that 

 46 Specifically, the distribution of estimated historical incomes aggregated over tax years 

generally matched the distribution of actual incomes upon which the estimates were 

based, with some exceptions. However, individual borrower income estimates are at the 

heart of how Education estimated repayment patterns for loans in IDR plans, and unusual 

patterns in individual borrowers’ income trajectories could affect the quality of its 

estimates. See appendix III for more information.
Page 33 GAO-17-22 Income Driven Repayment Plan Costs

estimates are based on reliable data.47 Education’s information quality 

standards and generally accepted statistical practices also recommend 

measuring error to assess its impact on estimates.48 Education officials 

agreed with the concerns we raised regarding their borrower income data 

and said they are open to improving data quality as necessary to help 

ensure reliable IDR plan budget estimates. Quality data and methods are 

essential to Education’s estimation approach, and both should be 

assessed to determine whether they produce reasonable results. (See 

appendix III for more information on error associated with Education’s 

data and methods.)

In addition to insufficiently assessing the reliability of its income data and 

forecasting methods, Education has not adjusted its income forecasts for 

inflation, causing IDR plan budget estimates to appear higher than they 

otherwise would be.49 Adjusting for inflation would increase borrowers’ 

future incomes and payment amounts, because loan payments are based 

 47 This Federal Accounting Standards Advisory Board guidance states that when agencies 

estimate subsidy costs, cash flow projections should be based on sufficient relevant and 

reliable data and reestimates should be based upon the best available data at the time the 

estimates are made. Federal Accounting Standards Advisory Board, Federal Financial 

Accounting and Auditing Technical Release 6: Preparing Estimates for Direct Loan and 

Loan Guarantee Subsidies under the Federal Credit Reform Act-Amendments to 

Technical Release No. 3, FASAB Handbook, Version 13 (June 2014). Further, 

Education’s information quality guidelines state that when Education uses sample data, it 

should assess the reliability of the sample, including its representativeness. U.S. 

Department of Education, U.S. Department of Education Information Quality Guidelines

(Washington, D.C.: Oct. 3, 2002).

48 These standards encourage Education to carefully select appropriate techniques when 

conducting statistical analysis, and acknowledge limitations including error produced by 

the selected methods. U.S. Department of Education Information Quality Guidelines. OMB 

guidelines also state that federal statistical agencies should apply sound statistical 

methods and account for error associated with them. Office of Management and Budget, 

Statistical Policy Directive No. 1: Fundamental Responsibilities of Federal Statistical 

Agencies and Recognized Statistical Units, Fed. Reg. Vol. 79 No.231 (Dec. 2, 2014). 

While Education is not a federal statistical agency, incorporating this best practice would 

help the agency identify and determine whether the effects of forecasting error on its cost 

estimates are acceptable.

49 Instead, Education estimated borrowers’ incomes for the years 2014 through 2043 

using historical income estimates from 1996 through 2013 without adjusting them for 

inflation. Additionally, Education assumed that any borrower entering repayment in 2014 

or later would have the same characteristics as those that entered repayment in 2013. As 

a result, incomes and repayment amounts for borrowers who enter repayment in future 

years (2014 through 2030) will be very similar to those of borrowers who entered 

repayment in 2013. 

Effect of Inflation
Page 34 GAO-17-22 Income Driven Repayment Plan Costs

on borrowers’ incomes.50 Increasing payment amounts would, in turn, 

decrease costs to the government. When asked, Education officials said 

they did not adjust income forecasts for inflation because they did not 

identify patterns in the estimated historical income data suggesting that 

incomes would be affected by inflation. Whether or not these patterns 

were evident when reviewing the data, there was inflation over the almost 

20-year period covered by the historical dataset and there is likely to be 

inflation in the future.51 Federal guidance for estimating subsidy costs 

stresses the importance of taking economic effects into account when 

estimating loan performance.52 For IDR plan costs, this would include the 

extent to which inflation affects borrower incomes and payment amounts.

By choosing not to adjust income forecasts to capture inflation’s future 

effects, Education over-estimated IDR plan costs. When we used 

Education’s data and computer programs to adjust borrowers’ future 

incomes for inflation, as well as the federal poverty guidelines used to 

calculate their discretionary incomes, we found that IDR plan budget 

estimates declined by over $17 billion, when compared to Education’s 

current IDR plan budget estimates.53 (See figure 15.54) In light of the 

 50 Borrower payment amounts under IDR plans are generally set as a set as a proportion 

of a borrowers’ income exceeding federal poverty guidelines. These guidelines are 

updated annually by the U.S. Department of Health and Human Services. However, 

Education used 2013 federal poverty guidelines throughout its forecasts and it did not 

consider the likelihood that poverty guidelines would also grow with inflation.

51 Education officials also said they did not incorporate inflation into their income forecasts 

because they believed that inflation would affect federal poverty guidelines and incomes 

similarly, mitigating inflation’s effect on cost estimates. However, officials did not test this 

assumption. When we tested the impact of inflation on both borrower incomes and federal 

poverty guidelines, expected costs changed substantially. See figure 15.

52 Federal Accounting Standards Advisory Board, Credit Reform Task Force, Issue Paper:

Model Credit Program Methods and Documentation for Estimating Subsidy Rates and the 

Model Information Store, 96-CR-7 (Washington, D.C.: May 1, 1996)

53 As previously noted, Education assumes that the profiles of borrowers who begin 

repaying their loans after fiscal year 2013 will be the same as those of borrowers who 

began repaying their loans in 2013. (Borrower profiles include income and loan amounts.) 

This limitation restricts the impact of inflation on the incomes of borrowers who began 

repaying their loans after 2013, as their annual inflation-adjusted incomes and the 

applicable poverty guidelines are identical to those of borrowers entering repayment in 

2013.
Page 35 GAO-17-22 Income Driven Repayment Plan Costs

substantial effects of inflation on borrower incomes and loan repayment 

amounts, inflation adjustment is essential to developing reliable IDR plan 

budget estimates. Until Education adjusts for inflation, its budget 

estimates will continue to inaccurately represent potential IDR plan costs.

Figure 15: Impact of Adjusting Borrower Income Forecasts for Inflation on 

Estimated Subsidy Costs of Direct Loans in Income-Driven Repayment Plans, 1995-

2017 Loan Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

This adjustment includes incorporating inflation into both borrowers’ future incomes and the federal 

poverty guidelines used to help determine their payment amounts. In general, payment amounts 

under Income-Driven Repayment plans are set as a percentage of borrowers’ adjusted gross 

incomes over 150 percent of the federal poverty guideline. (For the Income-Contingent Repayment 

plan, it is generally set as a percentage of borrowers’ adjusted gross income over 100 percent of the 

federal poverty guideline.)

 54 This figure includes $73.2 billion in current estimated costs, which is slightly lower than 

the $73.6 billion presented in our first research objective (rounded to $74 billion) and 

appendix IV. Those analyses included a slightly higher estimate of IDR plan loan volume 

for the 2017 cohort contained in the President’s fiscal year 2017 budget appendix. This 

analysis uses an updated loan volume estimate from Education that excludes loans that 

may not be disbursed to borrowers (e.g., when a borrower decides not to attend school).
Page 36 GAO-17-22 Income Driven Repayment Plan Costs

Additionally, Education assumes that all borrowers in IDR plans will 

recertify their incomes every year as required, which is likely to be 

inaccurate and could lead Education to overstate IDR plan costs. In fact, 

we recently reported that over half of borrowers in an Education sample 

failed to do so.55 When borrowers fail to recertify their income, Education 

generally increases their payments to what they would owe under the 

Standard 10-year repayment plan until they submit their required 

recertification.56 For some borrowers who fail to recertify their income, 

payments could increase by hundreds of dollars a month. While some 

borrowers may subsequently recertify within a few months, others may 

never recertify. Because Education does not take these occurrences into 

account, it underestimates what borrowers will pay when their certification 

lapses.

Education officials told us they did not include certification lapses in their 

approach to estimating IDR plan costs because they lacked recertification 

data linked to individuals. They also believed that certification lapses 

would not have a large impact on their estimates. Initially, officials said 

the agency is taking steps to reduce the number of borrowers failing to 

recertify. However, officials later acknowledged that these efforts are in 

the early stages of implementation, and there have been some 

setbacks.57 Until efforts to improve recertification rates are put in place, 

 55 GAO-15-663.

56 A borrower in the Income-Based, Income-Contingent, and Pay As You Earn plans who 

fails to provide updated income information can remain in an IDR plan and may be eligible 

for loan forgiveness, but their monthly payments will no longer be based on the borrower’s

income. Instead, the monthly payment amount is adjusted to what would be owed under 

the Standard 10-year repayment plan based on the loan balance when the borrower 

began repaying under an IDR plan. For the Revised Pay As You Earn plan, the borrower’s 

payment amount is set to ensure that the loan is paid in full over 10 years or the 

remainder of the borrower’s maximum Revised Pay As You Earn repayment period, 

whichever is less. 

57 In August of 2015, we reported that Education was exploring ways to help borrowers 

enroll and recertify their eligibility for IDR plans after learning that a majority of borrowers 

did not re-certify on time. This included working with the Internal Revenue Service and 

Treasury to allow borrowers in income-driven repayment plans to authorize the release of 

tax return information for multiple years and working with loan servicers to identify the 

most effective ways to communicate with IDR plan participants. GAO-15-663. Officials 

recently told us the initiative with the Internal Revenue Service has not progressed as 

hoped. However, they did engage in a pilot project with the cross-agency Social and 

Behavioral Sciences Team to explore the impact of different communications to borrowers 

about recertification, the results of which were still being verified. As previously noted, a 

bill was recently introduced in the House that would allow for automatic annual income 

recertification. However, this legislation has not been passed. SIMPLE Act, H.R. 5962, 

114th Cong. §§ 2-3 (2016).

Income Recertification
Page 37 GAO-17-22 Income Driven Repayment Plan Costs

certification lapses will likely continue. Further, without data indicating that 

certification lapses do not have a large impact on borrower payment

amounts, Education may overstate IDR plan costs.58 Federal guidance for 

estimating subsidy costs states that the information used in the estimation 

process should reflect actual repayment patterns for loans whose costs 

are being estimated, which would include instances when a borrower’s 

payment amount changes due to program rules.59 Obtaining data on 

borrowers’ actual repayment patterns after they fail to recertify their 

income could help Education determine whether its current approach 

appropriately accounts for the impact of recertification failure on IDR plan 

costs, and determine whether changes are needed.

Education likely underestimates IDR plan participation because it 

assumes all borrowers will remain in their currently selected repayment 

plan for their entire repayment period. This assumption conflicts with the 

fact that borrowers can switch into or out of IDR plans at any time, and 

IDR plan participation has grown in recent years.60 Participation is also 

likely to continue growing. Education agreed with our recent 

recommendation that the agency increase its efforts to make all 

borrowers aware of IDR plans.61 Further, as previously mentioned, the 

Administration recently announced a goal to enroll 2 million additional 

borrowers in IDR plans.62

 58 Education officials also said some borrowers who fail to recertify will cease repaying 

their loans (for instance through deferment or default), and that their estimation approach 

includes assumptions about such occurrences. Officials further theorized that borrowers 

who could afford to make higher payments based on their Standard payment amount 

would also repay their loans fully under their income-driven payment amount. For these 

reasons, officials believed that adjusting estimates for recertification failures may not be 

necessary. However, officials acknowledged that they lacked data to support their view.

59 Federal Accounting Standards Advisory Board, Credit Reform Task Force, Model Credit 

Program Methods and Documentation for Estimating Subsidy Rates and the Model 

Information Store.

60 The proportion of Direct Loan borrowers in IDR plans grew from 10 percent to 24 

percent between June 2013 and June 2016. This growth could be attributable to higher 

proportions of new borrowers joining IDR plans immediately upon entering repayment and 

other borrowers switching into IDR plans from other repayment plans. 

61 GAO-15-663.

62 This goal is to enroll 2 million borrowers in IDR plans by Spring 2017 through efforts 

including targeted outreach.

Future IDR Plan Participation
Page 38 GAO-17-22 Income Driven Repayment Plan Costs

As a result of Education’s likely underestimation of IDR plan participation, 

its IDR plan budget estimates may be biased downward, or appear lower 

than they otherwise should be. We found that Education’s IDR plan 

budget estimates for loans issued in recent cohorts have more than 

doubled over what was originally expected ($53 billion vs. $25 billion), 

primarily because of higher than expected participation in IDR plans.63

Federal guidance for estimating subsidy costs of federal loan programs 

states that it is preferable to use methods to estimate costs that are more 

sophisticated than relying solely on historical data, such as borrowers’ 

past plan selection.64

While Education’s current student loan model was not designed to project 

future changes in plan participation, officials told us that despite the 

challenge of predicting future borrower behavior they are working with 

Treasury to develop a more sophisticated model, and have begun 

incorporating this enhancement into a test version of this new model.

Additional work remains to ensure that the new model reasonably reflects 

trends in IDR plan participation—particularly borrowers switching into IDR 

plans from other repayment plans. For instance, IDR plans have not yet 

been added to the new model, which currently includes only the Standard 

and Extended repayment plans. Education’s model redesign is 

anticipated to be a multi-year project, and until the model has been 

completed and tested to ensure reasonable results, Education’s IDR plan 

budget estimates are vulnerable to underestimated IDR plan participation 

and costs.

Additionally, Education does not produce separate cost estimates for 

each of the five IDR plans currently available, even though these plans 

provide different benefits to borrowers and will likely have different costs 

to the government. For instance, the Income-Contingent Repayment plan 

has less generous provisions for borrowers than the Pay As You Earn 

 63 As noted earlier, Education’s fiscal year 2016 budget justification included a $12.3 

billion net upward reestimate that was due primarily to greater enrollment in IDR plans. 

Increased participation in IDR plans could include borrowers who are enrolling in IDR 

plans for the first time and borrowers who have switched from other repayment plans into 

IDR plans.

64 In general, this guidance states that econometric models, which are estimated 

quantitative methods of analysis that can define key relationships between loan 

performance and economic and other indicators are preferable to relying solely on 

historical information. Federal Accounting Standards Advisory Board, Credit Reform Task 

Force, Model Credit Program Methods and Documentation for Estimating Subsidy Rates 

and the Model Information Store.

Cost Estimates for Different 

IDR Plans
Page 39 GAO-17-22 Income Driven Repayment Plan Costs

plan, and as a result will likely have lower costs to the government.65

However, Education does not estimate these plans’ costs separately. 

According to Education officials, the student loan model, which it uses to 

generate official estimates of total Direct Loan costs, was created when 

only one IDR plan was available and cannot produce separate estimates 

for each IDR plan. While the supplementary model Education uses to 

estimate IDR plan repayment patterns could track repayment streams 

separately for each plan, its outputs must conform to the structure of the 

larger student loan model.

Federal guidance for estimating subsidy costs for federal loan programs 

specifies that agencies should assess the impact of changes in laws or 

regulations (such as the introduction of new repayment plans) on the 

reliability of estimates and should ensure that an agency’s methodology 

reflects these changes.66 While Education officials expressed concern 

about the complexity of estimating separate costs for each IDR plan, 

OMB staff told us that Education should add this capability as part of 

Education’s efforts to develop a more sophisticated model. Incorporating 

the ability to track costs of each IDR plan separately would help ensure 

that estimates more accurately reflect the current loan environment and 

provide valuable information to policymakers interested in streamlining 

student loan repayment options moving forward.

Lastly, Education combines repayment patterns for several types of loans 

eligible for IDR plans, obscuring likely differences in their performance 

over time. As a result, its budget estimates for Subsidized Stafford, 

Unsubsidized Stafford, and Grad PLUS loans in IDR plans are based on 

identical repayment patterns, although these types of loans have 

 65 Specifically, borrowers in the Income-Contingent Repayment plan are generally 

required to pay 20 percent of any adjusted gross income exceeding federal poverty 

guidelines for 25 years, or until their loan is fully repaid. Borrowers in the Pay As You Earn 

plan are required to pay 10 percent of their adjusted gross income exceeding 150 percent 

of the federal poverty guideline for 20 years, or until their loan is fully repaid. Borrowers in 

the Income-Contingent Repayment plan may have signed up for that plan before other 

more generous IDR plans became available. 

66 Federal Accounting Standards Advisory Board, Federal Financial Accounting and 

Auditing Technical Release 6: Preparing Estimates for Direct Loan and Loan Guarantee 

Subsidies under the Federal Credit Reform Act-Amendments to Technical Release No. 3.

Repayment Patterns for 

Different Loan Types
Page 40 GAO-17-22 Income Driven Repayment Plan Costs

numerous distinct features.67 For instance, the current interest rate on a 

Grad PLUS loan is almost double that of a Subsidized Stafford loan, 

leading borrowers with Grad PLUS loans to owe much more in interest on 

those loans over time.68 Conversely, borrowers with Subsidized Stafford 

loans will pay down principal on their loans more quickly over time 

because less of their payment goes toward interest. However, 

Education’s cost estimates do not reflect higher expected interest 

payments on Grad PLUS loans in IDR plans or faster principal repayment 

on Subsidized Stafford loans in IDR plans, because they are based on 

aggregate repayment patterns that include both types of loans. Education 

officials told us that, as a result of this practice, all differences in 

published subsidy rates for these loan types are wholly attributable to 

fees charged to borrowers at the time the loans are issued and how much 

interest accrues during the relatively short period that borrowers are still 

in school.69

Because Education’s estimates do not reflect differences in performance 

over the decades that loans in IDR plans may be in repayment, users of 

the budget are missing key information that could help them assess how 

IDR plan costs vary by loan type. As an example, some experts have 

raised concerns that Grad PLUS loans could have relatively high 

forgiveness amounts because they are larger on average than Stafford 

loans and may have a large amount of outstanding loan principal at the 

 67 Education officials noted that their supplementary model estimates IDR plan repayment 

patterns at the borrower level, similar to how a borrower’s loans would be serviced in the 

real world. Each borrower’s repayment will depend on their mix of underlying loans and 

will differ depending upon the relative mix of loans they have. However, outputs from this 

supplementary model (which are currently used to generate official subsidy cost 

estimates) are not separated by loan type. As a result, subsidy cost estimates for Grad 

PLUS, Subsidized Stafford, and Unsubsidized Stafford loans are based on identical 

repayment rates. 

68 Grad PLUS loans issued on or after July 1, 2016, and before July 1, 2017, have an 

interest rate of 6.31 percent while Subsidized Stafford loans issued at that time have an 

interest rate of 3.76 percent. 

69 For loans issued on or after October 1, 2016, and before October 1, 2017, Stafford loan 

borrowers (subsidized and unsubsidized) will pay a loan fee of 1.069 percent and Grad 

PLUS borrowers will pay a loan fee of 4.276 percent. 
Page 41 GAO-17-22 Income Driven Repayment Plan Costs

end of their repayment term.70 Due to limitations in Education’s current 

approach, users of the budget cannot determine the extent to which this 

concern affects subsidy rates for Grad PLUS loans in IDR plans.

According to Education officials, they could have separately estimated 

repayment patterns for each loan type, but did not believe that it was 

important to do so for several reasons. First, officials stated that they 

focused their efforts on estimating separate repayment patterns for 

Consolidation loans because they make up the majority of loans in IDR 

plans.71 However, nearly half of IDR plan loan volume—or $164 billion—is 

made up of Subsidized Stafford, Unsubsidized Stafford, and Grad PLUS 

loans, and it is important to estimate their repayment patterns accurately 

as well. Second, officials stated that they did not believe it was necessary 

to maintain separate repayment patterns for each type of loan because 

borrowers often have a mix of loans and repay them simultaneously. 

While this is true, policymakers have an interest in budget information that 

accurately reflects expected costs for each type of loan eligible for IDR 

plans.72 Further, federal guidance for estimating subsidy costs of federal 

loan programs states that loan characteristics—such as loan types—are 

critical for identifying factors that predict subsidy costs and should be 

preserved.73 Until Education separately tracks repayment patterns for 

each type of loan in IDR plans, its cost estimates will continue not to take 

into account important differences in loan characteristics, calling into 

question the reliability of the cost estimates, and policymakers will be 

unable to assess the relative costs of different types of loans.

 70 Specifically, Grad PLUS loans do not have a set dollar amount borrowing limit. Through 

these loans, graduate students can borrow up to the full cost of attendance such as tuition 

and fees and living expenses. Subsidized and Unsubsidized Stafford loans, however, 

have annual limits—from $3,500 to $5,500 for Subsidized loans, depending on the grade 

level, and from $5,500 to $20,500, depending on grade level and dependency status. 

Grad PLUS loans also have higher interest rates, and borrowers may repay more in

interest over their repayment period.

71 Consolidation loans are available to borrowers wanting to combine multiple federal 

loans (including Subsidized and Unsubsidized Stafford and PLUS loans) into one loan. 

Repayment periods are extended up to 30 years, thereby lowering monthly payments. 

Interest rates are equal to the weighted average of the underlying loans.

72 Current estimates do not capture how differences in interest rates affect expected 

principal and interest payments, or the amount of loan principal expected to be forgiven.

73 Federal Accounting Standards Advisory Board, Credit Reform Task Force, Model Credit 

Program Methods and Documentation for Estimating Subsidy Rates and the Model 

Information Store.
Page 42 GAO-17-22 Income Driven Repayment Plan Costs

Inadequate quality control practices contribute to concerns we identified 

regarding Education’s approach to estimating IDR plan costs. First, 

management has not ensured that the agency’s supplementary model for 

estimating IDR plan repayment patterns is properly documented. Second, 

management has not reviewed or approved that model. Third, 

management has not ensured that the model has been sufficiently tested 

for reliability.

Education has not ensured that its supplementary model for estimating 

IDR plan repayment patterns is properly documented. While a broad 

narrative summary of the model is available, agency officials confirmed 

that other technical documentation recommended in federal guidance for 

estimating subsidy costs does not exist.74 For instance, Education does 

not have a flow chart or other similar documentation specifying how 

elements of the estimation process—which is implemented by nearly 50 

computer programs—are sequenced and interact with each other. 

Additionally, the numerous mathematical formulas embedded in these 

programs are not separately documented, and there is no data dictionary 

to decode the variable names and values. Standards for internal control in 

the federal government state that documentation is a necessary part of an 

effective internal control system.75 Federal guidance for estimating 

subsidy costs states that model documentation should be thorough

enough that a knowledgeable independent person could follow the 

estimation process and replicate its results with little to no assistance.76

Such documentation is not available for Education’s supplementary 

model for estimating IDR plan repayment patterns.77

We recently recommended that Education improve documentation of its 

overall process for estimating costs of Direct Loans.78 Education agreed 

 74 Federal Accounting Standards Advisory Board, Preparing Estimates under the Federal 

Credit Reform Act, Technical Release 6.

75 GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).

76 Federal Accounting Standards Advisory Board, Preparing Estimates under the Federal 

Credit Reform Act, Technical Release 6. 

77 Our assessment of Education’s process necessitated reviewing numerous complex 

computer programs and following up with agency staff multiple times to clarify important 

details that were not documented. These details ranged from the order in which computer 

programs should be run to definitions of variables used in the model.

78 GAO-16-269. 

Education’s Quality 

Control Practices Are 

Inadequate to Help Ensure 

That Its IDR Plan Budget 

Estimates Are Reliable

Documentation
Page 43 GAO-17-22 Income Driven Repayment Plan Costs

with this recommendation, and officials stated that they were in the 

process of improving their documentation practices.

Further, we found that Education’s managers did not review and approve 

the supplementary model for estimating IDR plan repayment patterns, as 

recommended in federal guidance for estimating subsidy costs, after it 

was developed by staff.79 Additionally, as a good practice, we have found 

that agencies often hire an independent firm to ensure that model 

calculations are accurate and consistent with documentation. However, 

Education officials confirmed that their supplementary model for 

estimating IDR plan repayment patterns has not been reviewed by an 

independent firm.

Some of the concerns we identified in the previous section of our report 

regarding Education’s estimation approach could have been identified 

and resolved through an internal management review or independent 

external review. For instance, we found that the decision not to adjust 

borrower income forecasts for inflation causes IDR plan budget estimates 

to be $17 billion higher than they otherwise would be. We also found that 

PSLF loan forgiveness was programmed to begin a year after the benefit 

will actually become available to eligible borrowers. When we revised 

these programs to allow loans to be forgiven a year earlier, estimated IDR 

plan costs rose by $70 million. Agency staff told us this decision was 

made because borrowers were not likely to make the 120 consecutive ontime payments necessary to qualify for immediate forgiveness.

80

However, Education already makes assumptions about when borrowers 

 79 According to this guidance, the cash flow estimation process, including all underlying 

assumptions, should be reviewed and approved at the appropriate level including 

revisions and updates to the original model. Education officials said that while the model 

was not reviewed and approved, they do review outputs of revisions to the model. Federal 

Accounting Standards Advisory Board, Preparing Estimates under the Federal Credit 

Reform Act, Technical Release 6. Education managers did not review and approve the 

approach for estimating IDR cash flows (or repayment streams), which was created for the 

2017 budget cycle. 

80 Only payments made after October 1, 2007 count toward forgiveness, and borrowers 

cannot accelerate their repayment schedule. Therefore, the earliest a borrower could 

accrue the 120 scheduled on-time payments required to receive forgiveness is October 1, 

2017. (Qualifying payments must be made under a qualifying repayment plan for the full 

amount due while a borrower is employed full-time by a qualifying employer. Payments 

must be received no more than 15 days after their due date.) 

Review and Approval
Page 44 GAO-17-22 Income Driven Repayment Plan Costs

will not make scheduled loan payments.

81 An internal management 

review or independent external review may have pointed toward another

solution—such as adjusting how often borrowers are assumed to have 

periods of non-payment—rather than simply delaying the PSLF start 

date.

82

We recently recommended that Education create a documented process 

for management review and approval of its student loan model.83

Education agreed with this recommendation, and officials told us they 

also hoped to have their revised student loan model reviewed by an 

outside party in the future.

Although Education currently expects loans in IDR plans to be the most 

costly component of the Direct Loan portfolio, management has not 

ensured that its supplementary model for estimating IDR plan repayment 

patterns has been thoroughly tested. Such testing can help identify 

weaknesses so that they can be addressed, and help ensure that 

estimates are reasonable. As we previously mentioned, Education had 

not conducted the necessary testing to thoroughly assess the reliability of 

its borrower income data or measured error associated with its income 

forecasting methodology. Without such testing, Education officials do not 

know whether their data and methods produce reasonable results, or if 

alternatives are needed.

 81 Reasons for non-payment include deferment and forbearance, which are approved 

periods of non-payment (for instance, when a borrower returns to school or is 

unemployed) as well as default. Borrowers in default are not eligible for PSLF. 

82 In follow-up information, officials also cited information they said they received from 

Education’s Office of Federal Student Aid indicating that borrowers had only precertified 

about $6.5 million in loans as eligible for PSLF in the program’s first year. While 

precertification is not required, such information may be cause for Education to examine 

and adjust its current PSLF participation assumption, as discussed in the “model testing” 

section of our report that follows.

83 GAO-16-269. 

Model Testing
Page 45 GAO-17-22 Income Driven Repayment Plan Costs

Further, Education conducted sensitivity analysis on only one key 

assumption—borrower incomes—at the request of OMB.84 Federal 

guidance for estimating subsidy costs states that agencies should 

conduct sensitivity analysis—which involves adjusting an assumption up 

or down by a fixed proportion—or other testing to identify which 

assumptions have the largest influence on cost estimates.85 This 

information helps management anticipate the cost implications of 

alternative scenarios and focus oversight resources on key assumptions 

to help ensure that they are reliable and reasonable. However, Education 

officials told us they only conducted sensitivity analysis when asked by 

others, preferring instead to focus their resources on developing a single 

set of assumptions they believed were best. Developing a sound set of 

assumptions is, of course, important. Sensitivity analysis supports, rather 

than detracts from, this effort.

For instance, little is known about how many borrowers are eligible for or 

will participate in PSLF when it becomes available in October 2017.86

Despite this uncertainty and concerns among some experts and 

 84 When Education adjusted incomes up by 10 percent, cost estimates fell by almost $8.7 

billion for the 1995 through 2016 cohorts. When Education adjusted incomes down by 10 

percent, cost estimates rose by an equivalent amount. Education used its fiscal year 2016 

budget assumptions and revised model for estimating repayment patterns of loans in IDR 

plans for this analysis, which was not in use as of the fiscal year 2016 budget. It did not 

calculate a baseline estimate of what costs would be prior to adjusting incomes, so it is not 

possible for us to calculate the percent by which subsidy cost estimates changed. These 

results indicate that if borrowers’ future incomes deviate from Education’s current 

assumption, actual IDR plan costs could differ substantially from current estimates. 

85 Federal Accounting Standards Advisory Board, Preparing Estimates under the Federal 

Credit Reform Act, Technical Release 6.

86 Only borrowers who complete Education’s voluntary PSLF pre-certification process 

provide their employment information to Education. According to Education, almost 

950,000 pre-certification forms had been submitted as of June 30, 2016, about two-thirds 

of which had been approved.
Page 46 GAO-17-22 Income Driven Repayment Plan Costs

policymakers that PSLF could be costly to the government, Education has 

not conducted sensitivity analysis on its PSLF participation assumption.87

In order to illustrate the importance of conducting sensitivity analysis on 

major assumptions, we first revised Education’s computer programs to 

increase the percentage of borrowers expected to participate in PSLF by 

5 and 10 percentage points. As illustrated in figure 16, costs rose by $4.4 

and $9 billion, respectively.88

 87 Education’s PSLF assumption contains two elements, both of which are subject to 

uncertainty. First, Education estimates the percent of borrowers eligible for PSLF based 

on borrower employment patterns from past Education surveys. However, IDR plans allow 

PSLF-eligible borrowers to maximize forgiveness and may attract eligible borrowers at a 

higher rate than Education assumes. Second, Education assumes 100 percent of eligible 

borrowers will participate in PSLF, which is unlikely to occur. Specifically, as we have 

reported in the past, some borrowers may not be aware of the program. GAO-15-663 and 

Federal Student Loans: Education Could Improve Direct Loan Program Customer Service 

and Oversight, GAO-16-523 (Washington, D.C: May 16, 2016). (See appendix I for more 

information on Education’s assumption and how we assessed it.)

88 This figure (as well as figure 17) includes $73.2 billion in current estimated costs, which 

is slightly lower than the $73.6 billion presented in our first research objective (rounded to 

$74 billion) and appendix IV. Those analyses included a slightly higher estimate of IDR 

plan loan volume for the 2017 cohort contained in the President’s fiscal year 2017 budget 

appendix. This analysis uses an updated loan volume estimate from Education that 

excludes loans that may not be disbursed to borrowers (e.g., when a borrower decides not 

to attend school).
Page 47 GAO-17-22 Income Driven Repayment Plan Costs

Figure 16: Impact of Increasing Public Service Loan Forgiveness Participation on 

Estimated Subsidy Costs of Direct Loans in Income-Driven Repayment Plans, 1995-

2017 Loan Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

The Public Service Loan Forgiveness program allows borrowers employed full-time by a public 

service organization to apply for forgiveness after making 120 on-time payments in an Income-Driven 

Repayment plan or the Standard 10-year repayment plan.

We then decreased the percentage of borrowers participating in PSLF by 

5 and 10 percentage points. As seen in figure 17, costs fell by similar 

amounts.
Page 48 GAO-17-22 Income Driven Repayment Plan Costs

Figure 17: Impact of Reducing Public Service Loan Forgiveness Participation on 

Estimated Subsidy Costs of Direct Loans in Income-Driven Repayment Plans, 1995-

2017 Loan Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

The Public Service Loan Forgiveness program allows borrowers employed full-time by a public 

service organization to apply for forgiveness after making 120 on-time payments in an Income-Driven 

Repayment plan or the Standard 10-year repayment plan.

Our results illustrate the potential for PSLF costs to be different than what 

Education currently expects, and why it is important for Education to 

monitor this assumption and adjust it as necessary to ensure that it is 

reasonable. Without conducting similar sensitivity analysis on other major 

assumptions, monitoring those assumptions carefully, and adjusting them 

as necessary to ensure that they are reliable, Education’s budget 

estimates are vulnerable to bias that could result in costs being over- or 

understated by billions of dollars.
Page 49 GAO-17-22 Income Driven Repayment Plan Costs

In addition to identifying limitations in Education’s approach to estimating 

IDR plan costs and its quality control practices, we also found that 

Education has not published sufficient information about its estimates for 

policymakers to readily assess expected IDR plan costs. The kinds of 

information that Education has not published—and that could be useful to 

policymakers—include (1) total expected costs, (2) trend in estimates, (3) 

sensitivity analysis results, (4) limitations in estimates, and (5) estimated 

forgiveness amounts. Education officials noted that the department takes 

its responsiveness to policymakers and the general public seriously, and 

that the agency has responded to information requests about IDR plan 

cost estimates by congressional staff. However, congressional interest in 

IDR plans is high, and currently available information may be insufficient 

for policymakers to accurately assess likely plan costs, and consider the 

potential for alternative outcomes.

For instance, as a part of the President’s budget, Education publishes 

IDR plan loan volume and subsidy rate estimates for loans issued in the 

current and two most recent cohorts. This information can be used to 

calculate expected IDR plan costs for this limited group of loans. 

However, it is not possible to use this information to determine total 

expected costs for all loans in IDR plans. Additionally, Education has 

disclosed in reports accompanying the President’s budget that IDR plans 

are major contributors to upward revisions in estimated Direct Loan costs 

as a whole—it has not reported the amount by which IDR plan costs have 

risen or clearly described the reasons why.

Using unpublished data from Education, we found that total current 

expected IDR plan costs are about $74 billion, or $21 for every $100 

issued. We also found that expected IDR plan costs have doubled from 

$25 to $53 billion for loans issued from fiscal years 2009 through 2016—

primarily due to the growing volume of loans expected to be repaid in IDR 

plans. Publishing more comprehensive information like this could help 

policymakers better understand currently expected costs and monitor 

trends in the Direct Loan portfolio.

Additionally, by publishing sensitivity analysis results and limitations in 

estimates, Education could help policymakers understand what is known 

about possible IDR plan costs, and what is still unknown. Our own 

sensitivity analysis illustrates that IDR plan costs could be billions of 

dollars more or less than currently estimated if PSLF participation is 

higher or lower than expected. Given growth in IDR plan cost estimates 

over time due to the rising volume of loans expected to be repaid in these

plans, it would also be useful to disclose that current estimates assume 

Published Information May 

Not Be Sufficient for 

Policymakers to 

Accurately Assess 

Expected IDR Plan Costs
Page 50 GAO-17-22 Income Driven Repayment Plan Costs

that no borrowers will switch from other repayment plans into IDR plans in 

the future.

Lastly, sharing the amount of principal Education expects to forgive on

loans in IDR plans could help policymakers better understand a key plan 

feature that contributes to their expected costs. Education officials raised 

concerns that publishing forgiveness amounts could be misleading, 

because it is possible for the government still to generate income on 

loans with principal forgiven, particularly if borrower interest payments 

exceed forgiveness amounts. While this is true, loan amounts forgiven do 

represent foregone cash flows to the government. Further, legislation has 

been introduced in Congress to make forgiveness under certain IDR 

plans tax-free. Sharing information about expected forgiveness amounts 

could help policymakers better understand the scope of currently 

expected loan forgiveness and the potential tax implications of excluding 

forgiveness from taxable income.89

We calculated currently expected IDR plan forgiveness amounts using 

cash flow estimates provided by Education.90 For our analysis, we 

calculated the amount of loan principal Education expects borrowers in 

IDR plans to repay, and the amount it expects borrowers not to repay due 

to forgiveness and other reasons.91 Our results are in figure 18.92

 89 Loan principal forgiven under PSLF is not taxed. Legislation has been introduced in 

Congress to make forgiveness under certain IDR plans tax-free. See Student Loan Tax 

Relief Act, S. 3266, 114th Cong. § 2 (2016) and Student Loan Tax Debt Relief Act, H.R. 

2429, 114th Cong. § 2 (2015). While the Congressional Budget Office estimates costs of 

legislative proposals, such as those to change the tax treatment of loan forgiveness, 

members of Congress need sufficient information about currently expected costs to 

determine whether to propose such reforms.

90 For Direct Loans, cash flows from the government include loan disbursements to 

borrowers, while cash flows to the government include repayments of loan principal, 

interest and fee payments, and recoveries on defaulted loans.

91 Loan forgiveness amounts are distinct from estimated subsidy costs. Subsidy costs 

represent the net present value of expected cash flows from the government minus 

expected cash flows to the government over the life of the loan, excluding administrative 

costs. The forgiveness amounts we report are on a cash basis and are not discounted to 

present value. They also do not take into account the impact of interest and fee revenues 

from borrowers on expected subsidy costs.
Page 51 GAO-17-22 Income Driven Repayment Plan Costs

Figure 18: Direct Loan Principal in Income-Driven Repayment Plans Estimated to Be 

Repaid, Discharged, and Forgiven, 1995-2017 Loan Cohorts

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, lengthen 

repayment periods beyond the standard 10 years, and offer forgiveness at the end of the repayment 

period.

a

Includes recoveries on defaults. The federal government has strong collection powers, and 

Education expects to recover all defaulted loan principal in Income-Driven Repayment plans.

b

Includes loan principal that Education estimates will be forgiven under Income-Driven Repayment 

plan terms and the Public Service Loan Forgiveness program, which makes forgiveness available to 

borrowers employed full-time by a public service organization after making 120 on-time payments in 

an Income-Driven Repayment plan or the Standard 10-year repayment plan.

c

Includes loan principal that Education estimates will be discharged due to death or disability.

When discussing expanded information sharing, Education officials and 

OMB staff agreed that there could be value in reporting additional 

information about IDR plan cost estimates. An Education official raised 

concerns about the agency’s ability to publish additional cost information,

because OMB determines what is presented in the President’s budget. 

OMB staff agreed that such information would be too detailed for the 

 92 This analysis includes $3 billion less in loan volume than the $355 billion loan volume 

estimate presented in analyses for our first research objective and appendix IV, due to 

differences in how loan volume for the 2017 cohort was estimated. Specifically, those 

analyses used the loan volume estimate contained in the President’s fiscal year 2017 

budget appendix. This analysis uses an updated loan volume estimate provided by 

Education that excludes originated loans that may not be disbursed to borrowers (e.g., 

when a borrower decides not to attend school).
Page 52 GAO-17-22 Income Driven Repayment Plan Costs

President’s budget, but suggested that Education could provide more 

detailed IDR plan cost information through separate reports.93 Education’s 

strategic plan emphasizes the importance of information transparency as 

a tool to encourage data-driven decision-making and improve the U.S. 

educational system.94 Standards for internal control in the federal 

government also note that management should share quality information 

externally.95 By more thoroughly disclosing IDR plan cost information—

such as total estimated costs, sensitivity analysis results, key limitations 

in estimates, and expected forgiveness amounts—Education could help 

policymakers better assess the cost implications of current IDR plan 

provisions and consider whether reforms are needed.

Policymakers need reliable budget estimates to help align federal 

expenditures with policy priorities. In an environment of scarce resources, 

quality budget information becomes all the more important, as 

policymakers face difficult funding decisions. While IDR plans are a 

promising tool to help alleviate the burden of student loan debt and 

reduce borrowers’ risk of default, they may be costly for the federal 

government. Some uncertainty is unavoidable when anticipating longterm loan costs, but we found numerous shortcomings in Education’s 

estimation approach and quality control practices that call into question 

the reliability of its budget estimates and affect the quality of information 

Congress has to make informed budget decisions.

Because Education administers the federal government’s largest direct 

loan program, it is especially important that the agency corrects its 

methodological weaknesses associated with estimating IDR plan costs. 

More specifically, until Education assesses and improves the quality of 

data and methods it uses to forecast borrowers’ future incomes and 

accounts for inflation in its estimates, its IDR plan budget estimates may 

be unreliable. Further, until Education obtains data needed to estimate 

 93 OMB staff stated that because the President’s budget typically includes high-level 

information, a separate publication with more detailed information on estimated costs 

could be an appropriate place for such additional reporting.

94 Specifically, Education states in this plan that it will communicate findings from its own 

analysis, research, and evaluation in a clear and engaging way that is appropriate for the 

intended audience to further efforts to encourage data-driven decision-making by others. 

U.S. Department of Education, U.S. Department of Education Strategic Plan for Fiscal 

Years 2014-2018 (Washington, D.C.: Mar. 10, 2014).

95 GAO-14-704G.

Conclusions
Page 53 GAO-17-22 Income Driven Repayment Plan Costs

the impact of income recertification lapses on borrower payment 

amounts, it will not know whether borrower payments are currently 

underestimated and whether adjustments are needed to avoid overstating 

IDR plan costs. In addition, until Education’s planned revisions to its 

student loan model have been completed and tested to ensure 

reasonableness, the agency’s IDR plan budget estimates will not 

reasonably reflect participation trends in IDR plans, particularly the extent 

to which borrowers in other repayment plans may switch into them. In the 

interim, Education may continue to understate IDR plan costs by billions 

of dollars, as past trends in estimates indicate. Without separately 

tracking how available IDR plans and the types of loans eligible for them 

perform relative to each other over time, Education’s estimates will lack 

the detail needed to inform policymakers’ ongoing efforts to streamline 

plans and better target costs.

In addition to correcting its methodological weaknesses, Education could 

enhance the reliability of its budget estimates by implementing more 

robust quality control practices. Implementing our previous 

recommendation to more thoroughly document and review its approach 

could help Education’s management identify and resolve weaknesses.96

More robust model testing, including more extensive sensitivity analysis, 

could also help Education’s management identify and mitigate problems 

that may reduce the reliability of its budget estimates.

Moreover, as Education works to improve the quality of its IDR plan 

budget estimates, it could also help policymakers better understand the 

scope of currently expected costs and the potential for alternative 

outcomes by publishing more detailed information about its estimates, 

such as total estimated costs, the results of sensitivity analysis, key 

limitations, and expected forgiveness amounts. This information could 

help better support efforts to assess the cost-effectiveness of IDR plans 

and design any needed reforms.

We recommend that the Secretary of Education take the following six 

actions:

1. Assess and improve, as necessary, the quality of data and methods 

used to forecast borrower incomes, and revise the forecasting method 

to account for inflation in estimates.

 96 GAO, Credit Programs: Key Agencies Should Better Document Procedures for 

Estimating Subsidy Costs, GAO-16-269 (Washington, D.C.: July 13, 2016).

Recommendations for 

Executive Action
Page 54 GAO-17-22 Income Driven Repayment Plan Costs

2. Obtain data needed to assess the impact of income recertification 

lapses on borrower payment amounts, and adjust estimated borrower 

repayment patterns as necessary.

3. Complete efforts to incorporate repayment plan switching into the 

agency’s redesigned student loan model, and conduct testing to help 

ensure that the model produces estimates that reasonably reflect 

trends in Income-Driven Repayment plan participation.

4. As a part of the agency’s ongoing student loan model redesign efforts, 

add the capability to produce separate cost estimates for each 

Income-Driven Repayment plan and more accurately reflect likely 

repayment patterns for each type of loan eligible for these plans.

5. More thoroughly test the agency’s approach to estimating IncomeDriven Repayment plan costs, including by conducting more 

comprehensive sensitivity analysis on key assumptions and adjusting 

those assumptions (such as the agency’s Public Service Loan 

Forgiveness participation assumption) to ensure reasonableness.

6. Publish more detailed Income Driven Repayment plan cost 

information— beyond what is regularly provided through the 

President’s budget—including items such as total estimated costs, 

sensitivity analysis results, key limitations, and expected forgiveness 

amounts.

We provided a draft of our report to the U.S. Department of Education

(Education) for its review and comment. We provided relevant excerpts 

from our report to the U.S. Department of the Treasury and incorporated 

its technical comments as appropriate. We provided a draft of our report 

to the Office of Management and Budget for technical review, and did not 

receive technical comments in response. 

Education generally agreed with our recommendations, stating that in 

light of growing IDR plan participation, the agency has focused efforts on 

improving IDR plan budget estimates. Additionally, Education said that 

estimating the federal student loan costs is a task it takes very seriously, 

and that the agency is constantly seeking to enhance and refine its

models. 

First, Education agreed to assess and improve its borrower income 

forecasts, and listed additional factors it wished to consider when 

determining how to incorporate inflation into its forecasts.

Agency Comments 

and Our Evaluation
Page 55 GAO-17-22 Income Driven Repayment Plan Costs

Second, Education agreed to attempt to obtain data to assess the impact 

of income recertification lapses on borrower payment amounts. Education 

reiterated its belief that such lapses may only have a small impact on plan 

costs, but did not provide data to support that view. We clarified the 

language in our recommendation to indicate that model adjustments 

should only be undertaken as needed, based on the outcome of 

Education’s review of relevant data. 

Third, Education also agreed to incorporate repayment plan switching into 

its redesigned student loan model, and reiterated that efforts to 

incorporate this capability had begun despite challenges inherent in 

predicting borrower behavior. 

Fourth, Education agreed to add the capability to produce separate cost 

estimates for each IDR plan and each eligible loan type into its 

redesigned student loan model. Given the concern Education raised in its 

letter that revising its current approach to improve loan-type estimates

may not be a good use of resources, we revised our recommendation to 

clarify that this improvement could be undertaken as a part of the 

agency’s longer-term efforts to redesign its student loan model. 

Fifth, Education agreed to test its approach to estimating IDR plan costs

more thoroughly, including through more comprehensive sensitivity 

analysis. Education further explained its rationale for delaying the Public 

Service Loan Forgiveness (PSLF) start date in its cost model, citing 

preliminary evidence suggesting that few borrowers will make the 120 

consecutive on-time payments necessary to receive forgiveness in the 

program’s first year. Education also raised concerns that using the correct 

start date (which we found caused estimated costs to rise by $70 million) 

would overstate costs. We noted Education’s rationale and concerns in 

our report, and responded that another solution—such as adjusting how 

often borrowers are assumed not to make scheduled loan payments—

may be more appropriate than simply delaying the PSLF start date. 

Education agreed with our sixth recommendation to publish more detailed 

IDR plan cost information and stated that it plans to present sensitivity 

analysis results and key limitations in upcoming financial reports. 

Education’s comments are reproduced in appendix V.
Page 56 GAO-17-22 Income Driven Repayment Plan Costs

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 15 days from the 

report date. 

At that time, we will send copies to interested congressional committees 

and to the U.S. Departments of Education and the Treasury and the 

Office of Management and Budget. In addition, the report will be available 

at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this 

report are listed in appendix VI.

Sincerely yours,

Melissa Emrey-Arras, Director

Education, Workforce, and Income Security Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-17-22 Income Driven Repayment Plan Costs

This appendix discusses in detail our methodology for addressing (1) the 

U.S. Department of Education’s (Education’s) current Income-Driven 

(IDR) Repayment plan budget estimates and how they have changed 

over time and (2) the extent to which Education’s approach to estimating 

IDR plan costs and its quality control practices help ensure reliable 

budget estimates.

To address these objectives, we reviewed relevant federal laws, 

regulations, and guidance on the William D. Ford Federal Direct Loan 

(Direct Loan) Program and IDR plans. We reviewed documentation and 

interviewed officials from Education about the agency’s approach to 

estimating costs and its quality control practices. We also interviewed 

officials from the Congressional Budget Office and the U.S. Department 

of the Treasury (Treasury) and staff at the Office of Management and 

Budget (OMB), as well as higher education policy experts, to discuss 

issues related to federal budgeting practices and estimated IDR plan 

costs. To answer our first objective, we analyzed and reported on data 

underlying Education’s annual budget estimates for the Direct Loan 

program. To answer our second objective, we evaluated Education’s 

estimation approach and conducted sensitivity analysis to determine the 

impact of alternative assumptions on Education’s cost estimates. We also 

calculated the proportion of loan dollars Education expects to forgive 

under IDR plans using estimated cash flow data provided by Education. 

These analyses are described in more detail below. To assess the 

reliability of Education’s budget estimates, we interviewed agency 

officials, reviewed related documentation, and conducted extensive 

electronic testing. We believe the data are reliable to report in objective 

one as a representation of the funding Education reports is necessary to 

operate the Direct Loan program, and in objective two, to illustrate the 

sensitivity of Education’s budget estimates to different assumptions about 

future loan repayment activity and to illustrate currently expected 

forgiveness amounts.

To analyze Education’s current IDR plan budget estimates and how they 

have changed over time, we reviewed Education’s annual submissions to 

the President’s budget for fiscal years 2011 through 2017, which include 

estimated IDR plan loan volume and subsidy rates for Direct Loans to be 

issued in the year the of the budget and the two preceding fiscal years. 

For example, the budget submission for fiscal year 2011 included 

Appendix I: Objectives, Scope, and 

Methodology

Objective One: Review of 

Current and Past IDR Plan 

Budget Estimates
Appendix I: Objectives, Scope, and 

Methodology

Page 58 GAO-17-22 Income Driven Repayment Plan Costs

estimated IDR plan costs for loans in fiscal years 2009, 2010, and 2011.1

We used these budgets to identify the original IDR plan cost estimates for 

the 2009 through 2016 cohorts.2 Education did not publish subsidy cost 

estimates by repayment plan prior to the 2011 budget and could not 

easily provide the information necessary to determine original IDR plan 

cost estimates for previous cohorts.

We also reviewed supplemental unpublished data from Education to 

illustrate current IDR plan subsidy cost estimates for loans issued in fiscal 

years 1995 through 2017 using assumptions underlying their estimates 

for the President’s fiscal year 2016 and 2017 budget. We used these 

supplemental data, along with published data for the 2017 cohort, to 

calculate current total reestimated subsidy costs and subsidy income for 

each repayment plan, loan cohort, and loan type. We also compare 

original published IDR plan subsidy estimates for the 2009-2016 cohorts 

to the current reestimated IDR plan subsidy costs for those cohorts. We 

limited our comparison to these cohorts because Education did not 

publish subsidy cost estimates by repayment plan in earlier budgets and 

does not maintain information that would be needed to identify past 

estimates. (In appendix IV, we also compare Education’s IDR plan 

subsidy cost estimates for the fiscal year 2017 budget with those 

prepared for the fiscal year 2016 budget to illustrate how estimates 

changed from one budget to the next.) We compared the supplemental 

unpublished data to published data from the fiscal year 2016 and 2017 

 1 The President’s fiscal year 2011 budget contained estimates for loans issued in fiscal 

years 2011 and 2010, which were based on estimated discount rates and loan volumes. 

That fiscal year’s budget also contained estimates loans issued in fiscal year 2009, based 

on actual executed rates for 2009.

2 Because original estimates by repayment plan were not available for the 2009 and 2010 

cohorts, we used the first and second reestimate for those cohorts that were published in 

the 2011 budget. 
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-17-22 Income Driven Repayment Plan Costs

credit supplements to the President’s budget and interviewed Education 

to clarify reasons for minor discrepancies.3

To understand and evaluate Education’s approach to estimating the cost 

of loans in IDR plans, we first reviewed available documentation from 

Education on the supplementary model Education created to estimate 

repayment patterns of loans in IDR plans (referred to as the IDR plan 

repayment model in this appendix). We also reviewed documentation on 

Education’s student loan model, which uses information from the IDR 

repayment model and other assumptions to calculate total subsidy costs. 

(See appendix II for detailed information on how Education estimates IDR 

costs using these models.) This documentation provided limited details 

regarding the steps of Education’s IDR repayment model or how 

assumptions were operationalized and programmed in the model.

Given the limited documentation available regarding Education’s IDR plan 

repayment model, we reviewed the computer programs and datasets 

used in the model. Education provided us with SAS program files and 

data input files used in the model.4 The data input files contained the 

 3 For the 2017 budget data, we found differences in loan volume totals between the 

published budget and the supplemental data provided by Education for three loan cohorts. 

Specifically, the published loan volume for the 2012 and 2013 cohorts was slightly higher 

than in the supplemental data provided by Education. Education officials explained that for 

the 2012 and 2013 cohorts, total volume in the budget included a special loan 

consolidation program, Special Direct Consolidation, which was not included in the 

supplemental data provided to GAO because Education’s model could not estimate loan 

volume by repayment plan for that program. For the 2014 cohort, the published loan 

volume was somewhat lower than in the supplemental data because the published budget 

only included loans issued through the end of the fiscal year (September 2015) while the 

supplemental data included loans issued through the end of the 2015 award year 

(December 2015). 

4 The data analysis for this report was generated using SAS Enterprise Guide 7.12 

Copyright 2016 SAS Institute Inc. SAS and all other SAS Institute Inc. product or service 

names are registered trademarks or trademarks of SAS Institute Inc., Cary, NC, USA.

Objective 2: Review of 

Education’s Approach to 

Estimating IDR Plan Costs 

and Sensitivity Analysis of 

Education’s IDR 

Repayment Model

Evaluation of Education’s 

Estimation Approach
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-17-22 Income Driven Repayment Plan Costs

sample of Direct Loan borrowers Education used in its analysis as well as 

estimated historical incomes of those borrowers provided by Treasury. 

(See appendix III for more information on these historical income 

estimates.) The SAS program files implementing the model forecasted 

those borrowers’ future incomes and scheduled IDR plan payment 

amounts, as well as forecasted events that would lead to non-payment, 

such as default, death or disability, prepayment of loans through 

consolidation, or forgiveness of loans through the Public Service Loan 

Forgiveness (PSLF) program. To get further clarification on the 

documentation, data, and computer programs provided, we interviewed 

Education officials who created and manage the IDR plan repayment 

model and the overall student loan model, which is used to calculate 

subsidy costs for all Direct Loans.5

We assessed the IDR plan repayment model’s major assumptions for 

reasonableness and evaluated them against federal guidance for 

estimating subsidy costs developed by the Federal Accounting Standards 

Advisory Board. We evaluated methods used in the model, particularly 

Education’s approach to forecasting borrower incomes, against this 

guidance and accepted practices in statistics and the social sciences. We 

also assessed whether the model appropriately replicated IDR plan 

program rules. Finally, we conducted an in-depth review of the Treasurycreated estimated historical income data used in Education’s approach. 

We assessed the reasonableness of the data by conducting electronic 

testing and producing summary statistics, which we asked Treasury to 

compare to the actual taxpayer data upon which its estimates were 

based. We reviewed related documentation from Treasury about the 

estimation process, and interviewed Treasury officials to clarify factual 

details and obtain their views on the process. (See appendix III for more 

information on our review of these data and Education’s subsequent 

forecasting approach.)

Based on our detailed review of the assumptions, methods, and data 

used in the IDR plan repayment model, we identified two separate areas 

for testing the sensitivity of Education’s IDR plan cost estimates to 

changes in assumptions. First, we tested the effects of inflation on income 

 5 We used the model documentation, data, computer programs, and interviews to produce 

more detailed summaries of the modeling process, including step-by-step descriptions of 

the sequence of SAS program files, to understand and describe how the IDR plan 

repayment model works. For a detailed description of how Education estimates the costs 

of loans in IDR plans, see appendix II. 

IDR Plan Repayment Model 

Sensitivity Analysis
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-17-22 Income Driven Repayment Plan Costs

projections and poverty guidelines, both of which are used to estimate 

borrower payment amounts. We adjusted borrower incomes and poverty 

guidelines for inflation due to the exclusion of inflation from Education’s 

current model and the results of a prior Education analysis showing that 

cost estimates were sensitive to changes in borrower incomes. Second, 

we tested Education’s assumption about PSLF participation and the year 

borrowers would be first eligible for forgiveness under the program. We 

focused on PSLF participation because actual participation is not yet 

known for this program and Education assumed that any borrower they 

estimated to be eligible for PSLF would choose to participate. We carried 

out each sensitivity analysis by rewriting relevant portions of the existing 

SAS computer programs that Education developed to implement the IDR 

plan repayment model.

Establishing Baseline Output

To conduct these analyses, we first produced baseline cash flow 

estimates using the existing programs we received from Education. We 

sought to produce baseline estimates that were identical to those from 

Education’s existing model. The baseline replication ensured that the new 

model assumptions, rather than different versions of programs or input 

data, were solely responsible for any changes in the estimates. The 

replication process included selecting random samples of the data files 

and using the SAS Compare procedure to detect any differences in 

observations and variables. We interviewed Education officials to confirm 

the sequence and versions of programs and to establish our final baseline 

file.6

General Testing Procedures

After producing baseline estimates, we wrote two new sets of SAS 

program files to implement each new assumption and produce new cash 

flow output for each analysis. The final output data, which we sent to 

Education to produce subsidy rates, consisted of cash flows summed 

across all borrowers in repayment within each fiscal year and within loan 

population type (non-consolidated loans, loans consolidated from default, 

 6 We identified differences between our output and the fiscal year 2017 baseline output 

provided by Education. Through follow-up with Education officials about these differences, 

we determined that Education’s baseline output relied on older versions of their SAS 

program files. Education officials then advised us to use the output we created as a 

baseline for the sensitivity analysis, as this output used the most up-to-date SAS program 

files.
Appendix I: Objectives, Scope, and 

Methodology

Page 62 GAO-17-22 Income Driven Repayment Plan Costs

and loans consolidated not from default). We provided this output to 

Education officials, who uploaded and ran the new estimates through the 

larger student loan model. Education officials provided revised subsidy 

rates for each loan type and origination cohort, reflecting the new IDR 

plan cash flows under our alternative assumptions. For each sensitivity 

analysis, we compared the baseline and revised IDR cash flows and 

subsidy cost estimates and calculated the percent change.

Public Service Loan Forgiveness

We tested Education’s assumptions regarding borrower participation and 

the first year that borrowers are eligible for PSLF. Education estimates 

borrower eligibility for PSLF using survey data that may not be 

representative of borrowers in newer IDR plans.7 In addition, Education 

assumes that 100 percent of borrowers who are estimated to be eligible 

for PSLF will choose to participate after making 120 payments in a 

qualifying repayment plan. Lastly, Education assumes that no borrower 

will become eligible to benefit from PSLF until a year after the program is 

scheduled to begin. To assess the impact of altering these three 

assumptions, we increased and decreased the estimated percentage of 

borrowers eligible and participating in PSLF by 10 and 5 percentage 

points, and moved up the PSLF start date by a full year.

Adjusting Projected Incomes and Poverty Guidelines for Inflation

We tested the extent to which cost estimates were sensitive to adjusting 

incomes and poverty guidelines for inflation for future years after 2013. As 

described in appendix II, Education forecasts borrowers’ incomes by 

substituting the historical incomes of borrowers with similar 

characteristics, but does it not adjust these projected incomes for 

inflation. Education also uses 2013 poverty guideline data for future 

years, with no inflation adjustment. To implement this adjustment, we 

obtained inflation factors from OMB for all future repayment years, and 

inflated Education’s forecasted borrower incomes and poverty guidelines 

 7 Specifically, Education bases its estimates of eligible borrowers on employment data 

from the 1993 Baccalaureate and Beyond Longitudinal Study, which surveyed federal 

student aid recipients who graduated from college in 1993, and the 2004 Beginning 

Postsecondary Students Longitudinal Study, which surveyed non-college graduates and 

others who began school in 2004. It assumes that 21 percent of non-college graduates, 29 

percent of college graduates, and 31 percent of borrowers with graduate education are 

eligible for PSLF.
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-17-22 Income Driven Repayment Plan Costs

into the appropriate year’s dollar units.8 Specifically, we applied 

adjustment factors to the 2013 dollar amounts to inflate them to each 

future year’s dollar units. We then applied the existing repayment model 

using the inflated incomes and poverty guidelines as input, without 

altering any additional model assumptions or calculations.

To calculate expected forgiveness amounts for loans entering repayment 

in fiscal years 1995 through 2017, we analyzed cash flow data from 

Education, which provided detailed information on the amount of loan 

principal expected to be paid and not repaid. First, we determined the 

overall amount of loan principal in IDR plans estimated not to be repaid 

for any reason, as Education recommended. We did this by subtracting 

the amount of principal expected to be repaid from the total volume of 

loans disbursed to borrowers. The remaining amount represented loan 

principal estimated not to be repaid. We then subtracted the amount of 

loan principal estimated to be discharged due to a borrower’s death or 

disability. We attributed the remaining balance of unpaid principal to loan 

forgiveness under IDR plans and PSLF. Because Education expects to 

recover all defaulted loan principal through the collections process, loan 

defaults did not contribute to total non-payment of loan principal.

We assessed Education’s quality control practices by reviewing relevant 

documentation and interviewing officials in the office responsible for 

developing and managing the estimates. We evaluated Education’s 

practices against federal guidance related to estimating subsidy costs and 

standards for internal control in the federal government. We also 

assessed Education’s information sharing against standards for internal 

control in the federal government, and Education’s strategic plan.

We conducted this performance audit from March 2015 to November 

2016 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

 8 OMB works with agencies to execute the federal budget and issues economic 

assumptions, including inflation assumptions, for agencies’ use.

Calculating IDR Plan 

Forgiveness Amounts

Evaluation of Education’s 

Quality Control and Information 

Sharing Practices
Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Page 64 GAO-17-22 Income Driven Repayment Plan Costs

Based on our review of Education’s computer programs, model 

documentation, and interviews with agency officials, we confirmed that 

Education estimates subsidy costs for loans in Income-Driven Repayment 

(IDR) plans in the following way. First, Education estimates how many 

loan dollars will enter IDR plans from each loan cohort. Second, 

Education estimates repayment patterns for those loans over time. It 

performs this first task within its larger student loan model that calculates 

cash flows for cohorts of loans and incorporates various assumptions 

about the future.1 Education addresses the second task inside a 

supplementary microsimulation model for estimating IDR plan repayment 

patterns—referred to as the IDR plan repayment model in this appendix—

that was designed to predict the repayment behavior of individual 

borrowers from a sample of borrowers with loans in IDR plans.2 Through 

interviews, Education officials stated that they combine the resulting 

pieces of information in their larger student loan model to generate 

subsidy cost estimates.

Education estimates the percentage of loans in each cohort that will enter 

each repayment plan—Standard, Extended, Graduated, and IDR—inside 

its student loan model. According to Education’s model documentation 

and follow-up information from agency officials, Education based its cost 

estimates reported in the President’s fiscal year 2017 budget on a 

random sample of loans drawn from its National Student Loan Data 

System in January 2015.3 For loans issued after September 2014, 

Education applied repayment plan participation rates from a past cohort. 

For Consolidation loans, Education used 2014 cohort data because 

borrowers generally begin repaying those loans immediately. For nonconsolidated loans, which generally do not enter repayment for several 

years while borrowers are in school, Education used participation rates 

 1 Overall, the student loan model contains 19 major sets of assumptions. These 

assumptions concern various aspects of loan performance, such as how many borrowers 

will prepay their loans, how many borrowers will default, and how successful default 

collection activities will be

2 A dynamic microsimulation model, such as the one Education developed, starts with 

individual-level data from a representative sample of the population and applies rules and 

behaviors to project outcomes for that sample over time. 

3 The National Student Loan Data System is Education’s central database for student aid 

and contains information about individual borrowers’ loan activity including the amount 

they borrowed, their repayment plan, and whether they are in default, among other things. 

Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Education’s Approach to 

Estimating Costs of Loans 

in Income-Driven 

Repayment Plans

Estimating How Many Loan 

Dollars Will Enter IDR Plans
Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Page 65 GAO-17-22 Income Driven Repayment Plan Costs

from the 2011 cohort.4 IDR plan participation rates for the 2015 through 

2017 cohorts were adjusted upward in comparison to the 2014 cohort to 

account for expanded eligibility for two newer IDR plans (Pay As You 

Earn and Revised Pay As You Earn). For the fiscal year 2017 budget, this 

upward adjustment ranged from 1.4 to 6.2 percent, depending on the 

cohort and type of loan. Education officials stated that they then apply the 

percentage of loans assumed to enter IDR plans to the total dollar value 

of loans originated (or loan volume) in each loan cohort.

Education uses a separate IDR plan repayment model to forecast cash 

flows, which we refer to as repayment patterns, of loans in IDR plans 

based on a sample of borrowers with loans in repayment as of September 

2013. This random sample of borrowers was also drawn from the 

National Student Loan Database and reflected all loan activity through the 

end of fiscal year 2013, including but not limited to, the amount borrowed, 

loan type, and repayment plan. From this sample, Education selected all 

borrowers who had already begun repaying their loans under an IDR plan 

by September 2013. For the purpose of modeling future loan cohorts, 

Education assumes all borrowers entering repayment after September 

2013 will have the same characteristics as borrowers who entered 

repayment in 2013.

Education then estimates how much each of these borrowers will owe on 

their loans over a 31-year span, based on the borrower’s estimated 

adjusted gross income (income) and family size for each year in the 

repayment period and the rules of the IDR plan selected.5 Education used 

a two-step process to forecast borrower income and family size:

1. To forecast borrowers’ future incomes, Education first worked with 

Treasury to estimate past incomes, filing status, and family sizes of 

the sample of borrowers who had entered repayment by the end of 

fiscal year 2013. Treasury developed these estimates because 

Education does not collect tax data on all borrowers. Treasury collects 

 4 The 2011 cohort was selected for non-consolidated loans because about 80 percent of 

the non-consolidated loan volume for that cohort had entered repayment by the end of 

2014. 

5 Borrower’s monthly payment amounts are calculated as a percentage of their 

discretionary income. Discretionary income is the difference between the borrower’s 

adjusted gross income and the federal poverty guideline for the borrower’s state of 

residence and family size (100 percent for Income-Contingent Repayment and 150 

percent for the other IDR plans). Borrowers without discretionary income pay $0.

Estimating Repayment 

Patterns for Loans in IDR 

Plans
Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Page 66 GAO-17-22 Income Driven Repayment Plan Costs

this information for all U.S. tax filers, but did not share actual data 

from these borrowers’ tax filings due to privacy restrictions. Instead, it 

created a tax file that contained substituted, or “imputed,” information 

based on borrower characteristics including age, gender, loan 

balance, dependency status and family income. Treasury first 

estimated if a borrower would file taxes in a given year. For each 

borrower estimated to file taxes, it then imputed estimated nominal 

incomes and number of tax exemptions (approximating family size) for 

each of the borrower’s repayment years that occurred in tax years 

1996 through 2013. For example, borrowers who entered repayment 

in 1996 would have 18 years of imputed incomes while borrowers 

entering repayment in 2000 would have 14 years. (See Evaluating 

Income Data Used in Education’s Approach in appendix III for more 

information on Treasury’s methodology to estimate borrower incomes 

and our assessment of error associated with its approach).

2. To forecast future incomes of each borrower in its sample from 2014 

through the end of the borrower’s repayment period (up to 31 years in 

the future), Education first converted the estimated historical income 

data from Treasury from calendar years into “repayment years.”6 A 

borrower who began repaying his loan in calendar year 2000 would 

have estimated historical income data covering repayment years 1 

through 14 (formerly calendar years 2000 through 2013).7 To forecast 

that borrower’s future income in repayment year 15, Education first 

matched the borrower with a set of borrowers with similar 

characteristics. Education then randomly selected a borrower from 

this matched set of borrowers and substituted the nominal historical 

income observation from the same repayment year.8 It repeated this 

 6 Education begins estimating IDR plan repayment patterns after borrowers enter 

repayment status. While it may take up to 40 years for a borrower to fully repay a loan in 

an IDR plan from the time the loan is issued, that period includes the time that borrowers 

are still in school and in a 6-month period after finishing school when they are not required 

to repay their loans. Education estimates repayment patterns for borrowers in IDR plans 

for a period of up to 31 years based on the borrower’s maximum repayment period of 20 

or 25 years, (depending on the plan) plus 6 years to account for potential loan deferment 

or forbearance. According to Education officials, less than 3 percent of borrowers are in 

deferment or forbearance for more than 6 years.

7 For each forecast year, Education forecasted adjusted gross income, filing status, tax 

exemptions (proxy for family size), among other variables. 

8 Education identified similar borrowers based on information from their previous 

repayment year including adjusted gross income group, filing status, gender, initial loan 

balance group, highest degree earned, age group, and family status, among other 

variables.
Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Page 67 GAO-17-22 Income Driven Repayment Plan Costs

step for each subsequent year of the borrower’s maximum repayment 

period, choosing a different borrower’s nominal historical income 

observation in each year. Because Education matched the borrowers 

in their file with Treasury’s based on their repayment year (as 

opposed to calendar year), the nominal historical income values used 

in the forecasts could come from various non-sequential calendar 

years. (See Evaluating Income Data Used in Education’s Approach in 

appendix III for more information on Education’s methodology and the 

error associated with its approach).

Once Education forecasted incomes and family size for each borrower in 

the sample’s entire repayment period, Education then applied the rules of 

the borrower’s selected IDR plan to calculate the amount the borrower 

would owe over time.9 For instance, a borrower in the New Income-Based 

Repayment plan would pay 10 percent of her discretionary income for 20 

years, whereas a borrower in the Income-Contingent Repayment plan 

would pay 20 percent of her discretionary income for 25 years. For 

borrowers in the file who had not yet selected an IDR plan as September 

2013 (i.e., those estimated to enter repayment in 2014 or later), 

Education selects a plan for them based on assumptions about borrower 

behavior.10 For borrowers in the Income-Contingent Repayment plan, the 

IDR plan repayment model annually reevaluates whether they will switch 

into the Income-Based Repayment plan, and does so if the borrower’s 

monthly payment amount would be lowered by at least $50 by switching 

into the Income-Based Repayment plan. The IDR plan repayment model 

switches a borrower into the Revised Pay As You Earn Plan if that 

borrower is not eligible for the Pay As You Earn or New Income-Based 

Repayment plans and if the borrower saw his or her payment fall by $50 

compared to what would be owed under the Income-Based Repayment 

plan. Borrowers were assumed to choose Revised Pay As You Earn if the 

 9 Because the plans have identical benefits to borrowers, Education does not differentiate 

between the New Income-Based repayment plan and the Pay As You Earn plan in its 

approach. While older loan cohorts are eligible for Pay As You Earn and newer cohorts 

are eligible for New Income-Based repayment, those two plans offer borrowers the same 

benefits: borrowers pay 10 percent of their discretionary income and receive forgiveness 

after 20 years.

10 For example, Education assumes that borrowers who have not entered repayment and 

go into deferment or forbearance in 2010 or later will always choose the Income-Based 

Repayment plan. To reflect Pay As You Earn and New Income-Based Repayment plan 

rules, Education decreases the maximum repayment period by 5 years for Income-Based 

Repayment plan borrowers who are not in deferment or forbearance and who first 

borrowed in 2008 or later. Education assumed all borrowers who are eligible for Pay As 

You Earn or New Income-Based Repayment will select that plan. 
Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Page 68 GAO-17-22 Income Driven Repayment Plan Costs

present value of the payments with Revised Pay As You Earn were lower 

than the present value of payments without Revised Pay As You Earn

using a 30 percent discount rate. Education used a high discount rate 

because borrowers would likely place much less weight on the higher 

payments that would be likely to occur toward the end of the repayment 

period. Borrowers already in IDR repayment were assumed to choose 

Revised Pay As You Earn in the first year their payments fell by $50 a 

month or more. Borrowers who had not yet chosen an IDR plan were 

assumed to choose Revised Pay As You Earn if their payments would be 

lower in the first year. Borrowers stay in an IDR plan for their entire 

repayment period, even if their income rises beyond the point at which 

they would qualify if they were applying in that year, in order to calculate 

possible loan forgiveness amounts.

The IDR plan repayment model also includes predictions about when 

borrowers will delay repaying their loans (through deferment and 

forbearance); when they will fail to repay their loans (due to default, 

death, and disability); when they will prepay their loans through 

consolidation; and when their loan balances will be forgiven due to 

participation in the Public Service Loan Forgiveness program or at the 

end of their IDR plan’s full repayment term.11

The IDR plan repayment model’s final output consists of cash flows 

received (broken out by principal and interest) and foregone (such as 

through default, death, and disability) for each of the 31 years of 

repayment. These cash flows are summed across all borrowers who 

enter repayment in the same year for three different groups: (1) borrowers 

with Subsidized Stafford, Unsubsidized Stafford, and Graduate PLUS 

loans, (2) borrowers who defaulted and then consolidated their loans, and 

(3) borrowers who consolidated their loans without defaulting.12

 11 For defaulted loans, the government has strong collection powers and tools such as tax 

refund offsets and wage garnishments. Loans are only discharged under limited 

conditions, such as if a borrower dies, becomes totally and permanently disabled. Loans 

can also be discharged under bankruptcy, but because this type of loan discharge is rare, 

Education does not account for these occurrences in the IDR repayment model. 

12 Education estimates repayment patterns for Subsidized Stafford, Unsubsidized 

Stafford, and Graduate PLUS loans collectively and factors in the relative mix of the 

underlying loan types, but then combines the loan types to run through the student loan 

model. Education officials told us that, as a result of this practice, all differences in 

published subsidy rates for these loan types are wholly attributable to fees charged to 

borrowers at the time the loans are issued and how much interest accrues to the borrower 

during the relatively short period that borrowers are still in school. 
Appendix II: Description of Education’s 

Approach to Estimating Costs of IncomeDriven Repayment Plans

Page 69 GAO-17-22 Income Driven Repayment Plan Costs

Cash flows from the IDR plan repayment model are then exported to the 

larger student loan model. According to Education officials, the student 

loan model allocates these cash flows, which are organized by the year in 

which loans enter repayment, back to the appropriate loan origination 

cohorts using an assumption about the rate at which loans originated in a 

given year will enter repayment. Education assumes that all loans being 

repaid in IDR plans in a particular loan origination cohort will have the 

same cash flow patterns as loans in the sample used in the IDR plan 

repayment model.

The student loan model discounts estimated cash flows to present value 

using the Office of Management and Budget’s credit subsidy calculator 

tool to determine the subsidy cost. The subsidy rate is determined by 

taking the ratio of the subsidy cost to the volume of loan obligations 

estimated to be made in that year.

Exporting Cash Flows to 

Student Loan Model

Calculating Subsidy Costs
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 70 GAO-17-22 Income Driven Repayment Plan Costs

The U.S. Department of Education’s (Education’s) supplementary model 

for estimating Income-Driven Repayment (IDR) plan repayment 

patterns—referred to as the IDR plan repayment model—blends 

statistical analysis and assumptions about the future behavior of 

borrowers.

Education uses data on borrowers’ historical incomes to estimate their 

incomes in future repayment years. According to Education staff, the 

previous version of the agency’s IDR plan repayment model used data 

from the Current Population Survey, a general population sample survey 

administered by the U.S. Census Bureau, which the agency matched to a 

sample of borrower data. Education staff told us they searched for a 

different source of income data beginning in 2013, due to the relatively 

short 2-year Current Population Survey panel length. The short panel 

required Education to combine incomes from different individuals and 

Current Population Survey samples to project over enough repayment

years.

For Education’s current IDR plan repayment model, developed in 2015, 

agency staff sought income and other data from federal income tax 

returns, as collected by the U.S. Department of the Treasury (Treasury). 

Taxpayer data offered the potential for more accurate data than matched 

Current Population Survey data, which only covered a sample of 

borrowers for relatively short 2-year period. (According to Education 

officials, the Current Population Survey does not contain data on student 

borrowing so the prior model had to assume that borrowers and nonborrowers had the same income patterns.) Despite the expected benefits 

of using actual taxpayer data, Treasury staff indicated that rules 

concerning taxpayer privacy prevented them from providing data on 

actual borrower incomes directly.

Education staff said they initially hoped to receive data from Treasury that 

matched borrowers’ actual incomes as closely as possible, perhaps with 

a random distortion to protect taxpayer privacy. Staff mentioned 

Education’s National Postsecondary Student Aid Study restricted-use file 

as an example of a similar dataset.1 However, Treasury’s chosen 

 1 The National Postsecondary Student Aid Study restricted-use data file contains data on 

a sample of undergraduate and graduate students attending postsecondary institutions in 

the 50 states and the District of Columbia that were eligible to participate in the federal 

financial aid programs in Title IV of the Higher Education Act. The survey focuses on how 

students and their families pay for postsecondary education, and contains a wide range of 

demographic information about the nation’s postsecondary students.

Appendix III: Evaluation of Income Data 

Used in Education’s Approach

Income Data Used in 

Education’s Approach

General Use of Historical 

Income Estimates
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 71 GAO-17-22 Income Driven Repayment Plan Costs

approach involved imputing borrower income categories. Education staff 

then requested that Treasury convert these categorical values into dollarscaled incomes for use in Education’s IDR plan repayment model.

Based on our review of documentation from Treasury and Education, to 

assemble the data prior to imputation, Treasury matched a sample of 

borrower data that Education drew from the National Student Loan Data 

System containing loan information from September 2013 to their tax 

return data for filing years 1996 through 2013. Treasury assumed that 

borrowers did not file returns if they did not have matching tax return data 

for a given year. Key tax variables matched to the file for loan modeling 

purposes included adjusted gross income, number of exemptions, and 

filing status, among others. The final matched dataset included 

observations for approximately 1.3 million borrowers in each of 18 tax 

years.

After matching the files, Treasury used a data mining algorithm, known as 

“graphical models,” to create an imputed version of the matched data. 

According to Education staff, they asked Treasury to provide an imputed 

dataset that resembled the actual data as closely as possible, for all of 

the tax variables joined to their borrower records. Education staff said 

they expected incomes to be accurate within categories but having 

random distortion to preserve taxpayer privacy. Treasury staff told us that 

they lacked the time and prior experience with Education’s data to have a 

pre-existing model to meet these specifications. Instead, Treasury used 

graphical methods to automatically identify a model that best fit the joint 

distribution of the data across several variables and allowed for the 

simulation of new imputed data. Treasury staff said that this approach 

was simpler than what they might have done given more time, but it is 

unclear whether greater complexity in the model would have yielded 

better results.

Based on our review of documentation and interviews with Treasury staff, 

Treasury’s exact method of imputation had several steps. First, Treasury 

rescaled all variables from their natural scales into discrete categories, 

which primarily affected borrower incomes, which are naturally measured 

in continuous nominal dollars.2 Using categories of incomes rather than 

 2 In addition to a category for non-tax filers, Treasury created income categories for tax 

filers with adjusted gross incomes in the following ranges: up to $10,900, $10,900 to 

$22,000, $22,000 to $34,000, $34,000 to $50,000, $50,000 to $71,000, $71,000 to 

$104,000, and over $104,000.

Methodology for Assembling 

Historical Income Estimates
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 72 GAO-17-22 Income Driven Repayment Plan Costs

the continuous dollar scale allowed Treasury to develop a model using 

graphical methods that required less computing power. Second, Treasury 

used graphical methods to identify the relationships (or dependencies) 

among the borrower and tax variables in the matched data, in the form of 

multivariate crosstabulations. The model first estimated the probability 

that a borrower would file a tax return in a given year, and then modeled 

the joint distribution of the data, given that the first-stage model estimated 

that a borrower would file a return. After estimating these 

crosstabulations, Treasury created a single imputed dataset by drawing 

random variates from the fitted joint distribution of the data, in order to 

replace records in the actual dataset.

When imputing incomes, Treasury staff told us they took an additional 

step to transform the imputed income variables from a categorical to 

continuous scale by drawing random dollar values from probability 

distributions. For borrowers with incomes imputed in the lowest and 

highest categories, Treasury simulated continuous incomes by drawing 

from normal or log-normal distributions with moments set to their sample 

values. For borrowers in all other categories, Treasury drew independent 

random variates from uniform distributions with support on the range of 

each imputed category.

According to Treasury staff, they constrained the imputation model to 

replicate some of the longitudinal structure in the tax data over time within 

borrowers. The model imputed a borrower’s income in the current year 

based on the borrower’s one-year lagged income, which generally 

ensures that the imputed data recreates the correlation between incomes 

in adjacent years (i.e., the first-order autocorrelation). In addition, 

Treasury staff said that the imputation variables were stratified by year, in 

order to allow the conditional distributions to vary over time.

Any imputed data will have imputation error, the amount of which 

depends on the predictive power of the model or method used to create 

them. According to statistical theory, imputation models can produce 

imputed datasets that are systematically biased, in the sense that the 

imputed distribution of the data does not resemble the actual distribution 

across many imputations. Imputation can also produce imputed datasets 

that are unbiased but have a high degree of imputation error. (More 

specifically, the variance of a model’s posterior predictive distribution can 

be large.) In these cases, the imputed distribution of the data will 

resemble the actual distribution across many imputations, but the imputed 

Error in Historical Income 

Estimates
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 73 GAO-17-22 Income Driven Repayment Plan Costs

distribution in any one sample of imputed data, often one random 

simulation, may be quite different.3 Measuring error can involve 

calculating confidence intervals. A larger confidence interval relative to 

the estimate would suggest imputed data that are more prone to error. A 

user of imputed data typically would consider the size of a confidence 

interval as one criterion when assessing whether imputed data are 

sufficiently precise for a specific application, along with the imputation 

model’s potential bias and the user’s tolerance for error.

These two types of imputation error can affect the analysis of imputed 

data. Ordinary methods of statistical analysis generally assume that 

variables (like borrower incomes) are measured without error—an 

assumption that is clearly not valid when analyzing imputed data. 

Analyses that do not account for imputation error can produce estimates 

that are biased or more or less precise than ordinary statistical theory 

would imply, depending on the nature of the analysis.

To address these features of imputed data, generally accepted statistical 

practices suggest a number of methods for the analysis of imputed data. 

One common method uses “multiple imputation” to impute the data 

several times, producing “implicate datasets.” Implicates are randomly 

generated copies of the imputed data, produced by the same imputation 

model.4 The imputed data will vary randomly across implicates, 

depending on the nature and precision of the imputation method, because 

most imputation models have a partially random or probabilistic structure. 

By assessing the degree to which analytical results vary across 

implicates, analysts can incorporate the error of imputation when 

estimating the error of their estimates more generally. Imputation error 

“propagates” into other measures of precision, such as sampling error.

As an alternative or complement to assessing imputation error directly, 

the statistical literature recommends that analysts use imputed data as 

preliminary information, prior to replicating their analyses using actual 

 3 Roderick J.A. Little, “Statistical Analysis of Masked Data,” Journal of Official Statistics, 

Statistics Sweden vol. 9 no. 2 (1993): 407-426. Jerome P. Reiter, “Releasing Multiply 

Imputed, Synthetic Public Use Microdata: An Illustration and Empirical Study,” Journal of 

the Royal Statistical Society, Series A vol. 168 no. 1 (2005): 185-205. Jerome P. Reiter 

and Trivellore E. Raghunathan, “The Multiple Adaptations of Multiple Imputation,” Journal 

of the American Statistical Association vol. 102 no. 480 (2007): 1462-1471.

4 Ibid.
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 74 GAO-17-22 Income Driven Repayment Plan Costs

data.5 This approach applies to situations in which an analyst may not 

access the underlying data, but can provide computer code or algorithms 

to another analyst who may access the actual data and replicate the 

work.

Education staff told us they did not request information that would have 

allowed them to assess how imputation error would have affected its cost 

estimates, nor did they provide their computer code to a Treasury analyst 

who had access to the data to replicate their work. Education staff 

conducted an informal assessment of the quality of the borrower income 

data by reviewing correlations between incomes and key factors like 

education and borrowing levels. They did not use more formal methods to 

assess and address imputation error in their estimates, such as those 

discussed above. In addition, Education staff did not thoroughly document 

and evaluate the imputation methods that Treasury used, nor did they 

request evidence of an adequate model fit. Instead, according to 

Education staff, Treasury provided Education with limited documentation 

which included a broad overview of the imputation approach. Treasury 

developed detailed documentation of the imputation model and error at 

our request, several months after Education had accepted the final 

imputed data. Treasury staff reported having computing and other 

resource constraints that affected their choice of models and methods. 

These constraints would have affected Treasury’s capacity to run their 

model multiple times and produce multiple implicate datasets.

Through our review of summary documentation and limited descriptive 

and graphical analysis from Treasury, we found indications of imputation 

error that Education may not find acceptable for its purposes. This error 

relates to the imputation of incomes in the lowest and highest categories 

as well as the longitudinal structure of borrower incomes over time. This 

error warrants further evaluation by Education, given that the agency 

sought income data that would resemble borrowers’ actual, historical 

incomes as closely as possible, including accurate longitudinal profiles of 

incomes. Accurate longitudinal profiles of income are important, because 

Education’s IDR plan repayment model includes a number of calculations 

at the borrower level, such as specific payment amounts and borrowers’

eligibility for specific IDR plans, which use the sequence of data within 

 5 Gary Benedetto, Martha H. Stinson, and John M. Abowd, “The Creation and Use of the 

SIPP Synthetic Beta” (unpublished manuscript, U.S. Census Bureau, April 2013),16.

Comparison of Estimated 

and Actual Income Data
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 75 GAO-17-22 Income Driven Repayment Plan Costs

borrowers over time as inputs and are re-calculated each year over the 

repayment period.

Treasury staff told us they did not seek to impute incomes on the dollar 

scale. Rather, staff imputed income categories, and then evaluated model 

fit using the categorical distributions of the imputed and actual income 

data. After developing and validating the categorical imputation model, 

Treasury provided a simple transformation of the income categories into 

dollar values, using the secondary imputation methods we describe 

above. Treasury staff described this aspect of the imputation as a 

practical solution to meet needs that Education clarified after Treasury 

had developed the imputation method and its goals. Because dollarscaled incomes were not originally specified, Treasury staff told us they 

did not assess the fit of the imputed dollar-scaled incomes to the joint 

distribution of the data.

Treasury’s comparison of the imputed and actual income data indicates 

the imputed categorical data generally resembled the actual data, but its 

secondary step to produce dollar scaled data introduced additional error, 

particularly for observations in the highest and lowest income categories. 

Treasury provided us with tabulations and plots of the imputed and actual 

data, along with predictive p-values.6 The frequency statistics showed 

that the marginal and joint distributions of key variables were generally 

similar in the imputed and actual data for the categorical data, but that the 

secondary imputation of dollar scale incomes produced additional error 

for borrowers in the lowest and highest income categories. As the 

Treasury-provided summary statistics in table 1 show, the mean imputed 

income was about 2.1 times smaller than the mean actual income among 

borrowers who earned $12,000 or less. The imputed mean was about 1.9 

times larger than the actual mean for borrowers in the highest income 

category. Treasury officials agreed that imputation error may be greater in 

the lowest and highest categories, but speculated that the error may not 

be practically consequential for the calculation of income-based loan 

payments. However, because these data form the foundation of 

numerous individual-level sequential calculations that determine what 

borrowers are estimated to repay to the government, error associated 

 6 A predictive p-value is a measure of the degree to which the predictions of a statistical 

model will fall in the same range as the observed data used to develop the model. See 

Andrew Gelman, John B. Carlin, Hal S. Stern, and Donald B. Rubin, Bayesian Data 

Analysis, 2nd ed. (Boca Raton: Chapman and Hall/CRC, 2004), 159-165.

Error in Dollar-Scaled Incomes 

in Highest and Lowest 

Categories
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 76 GAO-17-22 Income Driven Repayment Plan Costs

with the data should be measured and its effect on budget estimates 

should be assessed.

Table 1: Descriptive Statistics on Imputed and Actual Income Data (Tax Years 1996 through 2013)

Mean Adjusted Gross Income (in thousands of dollars)

12 or less over 12 to 18 Over 18 to 100 Over 100 to 200 Over 200

Actual 

data

Imputed 

data

Actual 

data

Imputed 

data

Actual 

data

Imputed 

data

Actual 

data

Imputed 

data

Actual 

data

Imputed 

data

Percent 9.8 8.7 6.6 6.5 63.8 62.8 15.5 16.8 5.2 5.1

Mean -2.3 -4.8 15.0 15.0 51.3 52.3 134.1 135.4 481.1 922.0

Source: U.S. Department of the Treasury, Office of Tax Analysis. | GAO-17-22

By design, Treasury’s imputation model ensured that the correlation 

between incomes in adjacent years was similar in the imputed and actual 

data. Despite this important constraint, the model did not seek to 

accurately impute complete, realistic profiles of dollar-scaled incomes 

over time within the same borrower for all observed years. Consequently, 

the imputed profiles of incomes over time within borrowers were not 

designed to ensure that they resemble those observed in the actual data 

at the individual level. Treasury staff confirmed this feature of the imputed 

data.

Our limited exploratory analysis of the imputed dollar-scaled income data 

revealed patterns consistent with these features of the imputation. 

Incomes were less strongly correlated between adjacent years in the 

imputed data than in the actual data, based on statistics that Treasury 

staff provided. Specifically, let Var(AGIt | ADIt-1, AGIt-2, ... , AGIt-k) 

denote the marginal variance of incomes at time t, conditional on k 

previous values. In the imputed data, the limited evidence available to us 

suggests that the estimated conditional variance in the imputed data may 

exceed the actual variance in the population of student loan borrowers. 

The Pearson correlation between incomes in the current and previous 

year, truncated to the interval of positive incomes less than $1 million, 

was 0.84 in the actual data and 0.58 in the imputed data.7 In other words, 

one measure of the year-to-year instability of incomes was about 44 

percent larger than in the actual data. In addition, the absolute value of 

incomes changed between adjacent years by 52 percent in the actual 

 7 The Pearson correlation is a measure of the linear correlation between two variables, 

ranging from −1 (total negative correlation) to 1 (total positive correlation).

Error in Longitudinal Structure 

of Incomes over Time
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

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data but 75 percent in the imputed data. Consistent with these aggregate 

statistics, figure 19 shows how imputed incomes vary by large amounts 

from year to year within the same 10 randomly selected borrowers 

presented previously in the report, this time with their tax filing status 

indicated. Figure 20 illustrates how imputed incomes vary by large 

amounts from year to year within the same 60 randomly selected 

borrowers.

Figure 19: Treasury’s Estimated Historical Incomes for Randomly Selected Sample of Direct Loan Borrowers

Notes: Estimated incomes represent borrowers’ nominal adjusted gross incomes for the first 10 years 

of loan repayments, as estimated by the U.S. Department of the Treasury (Treasury). Repayment 

could have occurred from tax year 1996 through tax year 2013, depending on when the borrowers 

entered repayment. Dashes in the income series represent years when borrowers were estimated not 

to have filed tax returns. Adjusted gross income can be negative if taxpayers have income deductions 

or exclusions that exceed their gross income.

Education disburses student loans directly to borrowers through the William D. Ford Federal Direct 

Loan (Direct Loan) Program.
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 78 GAO-17-22 Income Driven Repayment Plan Costs

Figure 20: Treasury’s Estimated Historical Incomes for Randomly Selected Direct Loan Borrowers (Tax Years 1996 through 

2013)

Notes: Limited to borrowers with estimated adjusted gross incomes between $5,000 and $300,000.

Education disburses student loans directly to borrowers through the William D. Ford Federal Direct 

Loan (Direct Loan) Program.
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 79 GAO-17-22 Income Driven Repayment Plan Costs

The secondary imputation of incomes in dollars may explain the patterns 

above. Simulating dollar-scaled incomes from a set of uniform, normal, or 

log-normal distributions would have added some amount of 

approximation error, potentially inflating the conditional variance above in 

the imputed data. The degree of error would depend on how strongly the 

actual income distribution within each category diverged from the 

assumed distribution (e.g., its nonlinearity when simulated as uniform). 

Consistent with this explanation, Treasury staff reported nearly identical 

Pearson correlations between current and 1-year lagged categorical 

incomes in the imputed and actual data, at 0.69 and 0.67, respectively. 

The approximation error for continuous incomes may have compounded 

across years when Treasury staff independently simulated incomes for 

the same borrowers in adjacent years, without constraining the imputed 

distribution to preserve the potential dependency of incomes across 

second-order lags and higher.

Treasury staff emphasized that adjusted gross income can be more 

volatile over time than other measures of income. Adjusted gross income 

includes gross wages, business income, and asset income, among other 

sources, as well as certain deductions and credits. According to Treasury 

staff, adjusted gross income can vary more substantially over time than 

other sources of income, such as wages, and that such variation is 

common among upper-income filers. However, we found that the 

absolute value of imputed adjusted gross incomes varied between 

adjacent years by 15 to 77 percent for the middle 50 percent of the 

sample of borrowers with adjusted gross incomes above 0 and less than 

$400,000. The widespread nature of the volatility conflicts with an 

explanation that emphasizes volatile sources of income, deductions, and 

credits among borrowers with high incomes.

We did not receive sufficient information to fully evaluate the nature and 

extent of imputation error in the Treasury data, and how it would affect 

Education’s IDR plan cost estimates. For instance, we did not receive 

Treasury’s computer code or the actual tax data. Instead, Treasury staff 

described the analysis in interviews and written briefing slides, as well as 

a 7-page summary of the analysis that they previously provided to 

Education. The correlations and proportional change statistics above are 

limited in their ability to fully describe complete profiles of incomes at the 

individual borrower level and their dependence over time, because they 

describe linear associations only between data from adjacent years. 

Additional analysis, with full access to the imputation model code and tax 

data and a thorough assessment of the longitudinal structure of incomes 
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 80 GAO-17-22 Income Driven Repayment Plan Costs

within borrowers over time, is necessary to confirm the imputation error 

suggested by the limited evidence we obtained from Treasury.

The IDR plan repayment model uses the imputed data on borrower 

incomes and other characteristics to forecast these data for future 

repayment years that have not yet occurred. The model uses a different 

method of imputation, known as the “hot-deck,” to make these forecasts. 

Below, we describe this method in detail and evaluate it against generally 

accepted statistical practices.

According to our review of the imputed data that Education received from 

Treasury, the data could span a variable portion of each borrower’s

repayment history. Education received imputed data for tax years 1996 

through 2013. For a borrower who entered repayment in 1996, this period 

would span the entire historical repayment period through 2013, but it 

would not cover future years when the borrower may still be in 

repayment. Conversely, for a borrower who entered repayment in 1986 

and repaid all debt in 2000, the data would span the last four historical 

years but not the first 10. Many other types of overlap are possible.

The repayment model uses these historical data and hot-deck methods to 

impute or forecast data for repayment years that have not yet occurred. 

The hot-deck is a general purpose method of imputation, which statistical 

organizations commonly use to impute missing survey data. For a set of 

records needing imputation, hot-deck methods use a set of covariates to 

identify one or more records in the data with observed values on all 

variables, which is similar to the record needing imputation. The method 

then substitutes the observed values for the values needing imputation, 

often using random selection among the donor records when multiple 

donor records are available.

Once the repayment model forecasts data for unobserved repayment 

years, it treats them as known, observed data. The repayment model 

uses the forecasted data as input for the second stage of modeling, which 

applies various assumptions about how borrowers will repay their loans 

over time. The second stage modeling incorporates neither the error 

associated with Treasury’s imputation of the matched tax and loan data 

nor the error associated with Education’s hot-deck forecasting.

As mentioned previously, any method of imputing or forecasting unknown 

observations will have error associated with its predictions. Although the 

nature of this error depends on the method and data, generally accepted 

Forecasting Future 

Borrower Incomes and 

Characteristics

Education’s Process of 

Forecasting Borrower Incomes 

and Other Characteristics

Education’s Forecasting 

Process and Prediction Error
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 81 GAO-17-22 Income Driven Repayment Plan Costs

statistical practices typically recommend quantifying the error and 

incorporating it into subsequent analysis of the predictions. Education’s 

method of forecasting borrower incomes does not quantify the error 

associated with the method or incorporate it into subsequent analyses.

Education’s analysis seeks to forecast the values of several variables, 

most notably income, for a set of borrowers over up to 31 future 

repayment years. One could view this as either a longitudinal econometric 

modeling problem or a general purpose imputation of missing data. Using 

either approach, accepted statistical practice involves quantifying and 

propagating the error that is inherently associated with prediction.

An econometric approach would use an explicit statistical model for how 

the forecasted variable depends on several other variables (or 

covariates).8 Additional assumptions would describe how the imputed 

variable varies over time, either through covariates (such as time 

indicators) or assumptions about the variable’s random fluctuation around 

its long-term mean (such as an error term with an autoregressive order 1 

structure). These model assumptions provide explicit formulas to predict 

future values of the variable and to quantify the likely error of prediction. 

The latter formulas for prediction error (or the posterior predictive 

distribution) can allow analysts to propagate the error of prediction into 

subsequent analyses of those predictions.

An alternative approach would use more advanced methods of imputing 

missing data, such as multiple, maximum likelihood, or expectationmaximization imputation.9 These methods assume an explicit probability 

model for the joint distribution of the data, with parameters that can be 

estimated from the data. Analysts can use various methods for drawing 

from the fitted data distribution, in order to generate multiple implicate 

datasets, as discussed above. This allows for analysts to quantify and 

propagate error across subsequent analyses of the imputed data.

Education’s application of the hot-deck method does not follow these 

general statistical principles. The method imputes the future values of all 

 8 Often the analysis would develop a generalized linear regression model for the 

conditional mean and a distributional model for an error term. For example, see Edward 

W. Frees, Longitudinal and Panel Data: Analysis and Applications in the Social Sciences

(New York: Cambridge University Press, 2004), 125-147.

9 Roderick J.A. Little and Donald B. Rubin, Statistical Analysis with Missing Data, 2nd ed. 

(Hoboken: John Wiley and Sons), 75-90, 133-143, 190-198.
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 82 GAO-17-22 Income Driven Repayment Plan Costs

unknown data, using donor cases that are similar on a set of covariates, 

such as gender and highest educational program level. After making 

predictions, the method does not quantify the prediction error of the 

estimates, using in-sample statistics such as mean-squared error, 

misclassification rates, deviance statistics, predictive p-values, or the 

estimated variance of the posterior predictive distribution.

Once the repayment model forecasts the income data for future years, it 

assumes that the estimates have zero prediction error associated with 

them, or equivalently, that the error does not affect the repayment 

model’s loan cost estimates. Since any applied method of forecasting or 

imputation produces error, and Education’s IDR plan cost estimates are 

highly sensitive to changes in borrower income forecasts, it is important 

for Education to measure this error and determine its ultimate impact on 

IDR plan cost estimates.

Moreover, the IDR repayment model uses source data that have their 

own unquantified imputation error from Treasury’s imputation. These two 

sources of error—Treasury’s imputation and Education’s forecast—may 

interact and combine in ways that further increase the bias and 

imprecision of Education’s loan cost estimates. The presence of multiple 

forms of error, at different stages of analysis, emphasizes the importance 

of propagating all sources of error through the entire analysis, or else 

eliminating imputation error from the imputed data by using actual 

observations. At a minimum, Education should acknowledge the 

presence of imputation error and identify how it might affect estimates 

from the repayment model. Such acknowledgements would provide more 

transparent information to users of its estimates, compared to point 

estimates that do not disclose the limitations of the source data.

Statistical organizations accept the need for users of imputed data, such 

as Education, to quantify and assess the effects of imputation error, 

despite their release of public data that have been imputed. The U.S. 

Census Bureau warns users that methods of estimating sampling error 

will underestimate total error when data have been imputed.10 In recent 

years, the Census has generated imputed data for several surveys, the 

Survey of Income and Program Participation and Longitudinal Business 

Database, but has warned that analyzing imputed data without necessary 

 10 For example, see U.S. Census Bureau, Survey of Income and Program Participation 

Users’ Guide: Supplement to the Technical Documentation, 3rd ed. (Washington, D.C.: 

2001), 7-6.
Appendix III: Evaluation of Income Data Used 

in Education’s Approach

Page 83 GAO-17-22 Income Driven Repayment Plan Costs

corrections may understate the variance of estimates.11 This guidance to 

data users is consistent with the criteria discussed above, which 

recommend quantifying and propagating imputation error, despite 

statistical agencies’ widespread use of imputed data in public data 

products.

 11 Ron S. Jarmin, Thomas A. Louis, and Javier Miranda, “Synthetic Data: Public-Use 

Micro Data for a Big Data World,” accessed Sept. 1, 2016, 

http://researchmatters.blogs.census.gov/2014/10/14/synthetic-data-public-use-micro-datafor-a-big-data-world/.
Appendix IV: Supplemental Direct Loan 

Subsidy Cost Data

Page 84 GAO-17-22 Income Driven Repayment Plan Costs

The following tables include a summary of available loan cohort data 

underlying the U.S. Department of Education’s (Education’s) submissions 

to the President’s fiscal year 2016 and fiscal year 2017 budgets. These 

tables are provided to illustrate how Education’s estimates of IDR plan 

costs shifted over the past two President’s budgets. Some of the 

differences are attributable to the change in Education’s methodology for 

estimating IDR plan costs, which was implemented for the President’s 

fiscal year 2017 budget and is described in this report. Other differences 

are due to the policy assumptions in place when the budgets were 

developed. Specifically, for the fiscal year 2016 budget, Education used 

provisional policies for its newest IDR plan that were under negotiation. 

Estimates prepared for both the President’s fiscal year 2016 and fiscal 

year 2017 budgets included legislative proposals affecting new 

borrowers.1 Finally, the fiscal year 2017 budget estimates include 

increased costs associated with the addition of the 2017 loan cohort, as 

well as the updated current reestimated costs of older cohorts.

Table 2: President’s Fiscal Year 2016 and 2017 Budget Estimated Subsidy Rates, Loan Volumes, and Subsidy Costs for All 

Direct Loans in Income-Driven Repayment Plans, by Loan Type 

Subsidy rate

(percent)

Total volumeb

(Dollars in millions)

Total subsidy cost

(Dollars in millions)

Loan typea 2016 2017 2016 2017 2016 2017

Subsidized Stafford 15.61 17.66 37,267 42,991 $5,817 $7,593

Unsubsidized Stafford 15.44 19.43 76,468 96,305 11,803 $18,709

PLUS 7.63 15.27 20,310 25,054 1,550 $3,826

Consolidation 28.67 22.84 134,459 190,429 38,550 $43,489

Total 21.50 20.75 268,504 354,778 57,720 $73,617

Source: GAO analysis of the U.S. Department of Education’s fiscal year 2016 and 2017 budget estimates. | GAO-17-22

Notes: Income-Driven Repayment (IDR) plans tie borrowers’ monthly payments to their incomes, 

lengthen repayment periods beyond the standard 10 years, and offer forgiveness at the end of the 

repayment period.

Education disburses student loans directly to borrowers through the William D. Ford Federal Direct 

Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs. A subsidy rate 

 1 Education created Revised Pay As You Earn through administrative action, and it was 

under negotiation when Education officials prepared estimates for the President’s fiscal 

year 2016 budget proposal. Education officials told us they used Revised Pay As You 

Earn draft provisions to calculate subsidy cost estimates for all past loan cohorts. 

Additionally, both the fiscal year 2016 and fiscal year 2017 budgets modeled legislative 

proposals to limit available IDR plans to the Revised Pay As You Earn plan for new 

borrowers; however, neither was subsequently implemented.

Appendix IV: Supplemental Direct Loan 

Subsidy Cost Data 
Appendix IV: Supplemental Direct Loan 

Subsidy Cost Data

Page 85 GAO-17-22 Income Driven Repayment Plan Costs

is the cost per dollar of credit assistance, determined by dividing the subsidy cost by the volume of 

loans estimated to be made in a given year.

Estimates included in this table do not include the 1994 loan cohort. (A loan cohort is the group of 

loans made in a particular fiscal year.) Education does not begin estimating IDR subsidy costs until 

the 1995 loan cohort. Fiscal year 2016 budget estimates include loan cohorts 1995-2016. Fiscal year 

2017 budget estimates include loan cohorts 1995-2017.

a

Education issues four types of Direct Loans: (1) Subsidized Stafford loans are available to 

undergraduate borrowers with financial need. (2) Unsubsidized Stafford loans are available to 

undergraduate and graduate student borrowers, regardless of financial need. (3) PLUS loans are 

available to graduate student borrowers as Grad PLUS loans and parents of dependent 

undergraduates as Parent PLUS loans. (Grad PLUS loans are eligible for Income-Driven Repayment 

plans, while Parent PLUS loans are not.) (4) Consolidation loans are available to borrowers wishing 

to combine multiple existing federal student loans into one loan.

b

Estimates in the 2016 column include the original loan volume estimate for the 2016 cohort 

contained in the President’s fiscal year 2016 budget. Estimates in the 2017 column include the 

original loan volume estimate for the 2017 cohort contained in the President’s fiscal year 2017 

budget. Estimates for all other loan cohorts are based on updated loan volume estimates provided by 

Education that exclude loans that are originated but may not be disbursed (e.g., when borrowers 

decide not to attend school).

Table 3: President’s Fiscal Years 2016 and 2017 Budget Estimated Subsidy Costs for All Direct Loans, by Loan Type and 

Repayment Plan

Dollars in millions

Standard Graduated Extended Income-Drivenb

Loan typea 2016 2017 2016 2017 2016 2017 2016 2017

Subsidized Stafford $11,003 $11,963 $1,873 $1,272 $357 $348 $5,817 $7,593

Unsubsidized Stafford -77,242 -72,914 -18,435 -19,476 -4,778 -5,892 $11,803 $18,709

PLUS -33,336 -37,706 -9,914 -11,221 -4,278 -4,651 $1,550 $3,826

Consolidation -7,888 -11,920 -2,981 -5,328 -431 -1,956 $38,550 $43,489

Total -107,463 -110,578 -29,458 -34,752 -9,130 -12,151 $57,720 $73,617

Source: GAO analysis of the U.S. Department of Education’s fiscal year 2016 and 2017 budget estimates. | GAO-17-22

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy costs represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs.

Education offers a variety of repayment plans for Direct Loan borrowers. Standard repayment fixes 

borrowers’ monthly payments over a repayment term of 10 years. Graduated repayment offers 

borrowers payments that gradually increase over a 10 year repayment term. Extended repayment 

extends borrowers’ repayment term up to 25 years, and features fixed or graduated repayment 

amounts. Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, 

lengthen repayment periods beyond the standard 10 years, and offer forgiveness at the end of the 

repayment period.

Estimates in the 2016 columns use the original loan volume estimate for the 2016 cohort contained in 

the President’s fiscal year 2016 budget. (A loan cohort is the group of loans made in a particular fiscal 

year.) Estimates in the 2017 columns use the original loan volume estimate for the 2017 cohort 

contained in the President’s fiscal year 2017 budget. Estimates for all other loan cohorts use updated 

loan volume estimates provided by Education that exclude loans that are originated but may not be 

disbursed (e.g., when borrowers decide not to attend school).

a

Education issues four types of Direct Loans: (1) Subsidized Stafford loans are available to 

undergraduate borrowers with financial need. (2) Unsubsidized Stafford loans are available to 

undergraduate and graduate student borrowers, regardless of financial need. (3) PLUS loans are 
Appendix IV: Supplemental Direct Loan 

Subsidy Cost Data

Page 86 GAO-17-22 Income Driven Repayment Plan Costs

available to graduate student borrowers as Grad PLUS loans and parents of dependent 

undergraduates as Parent PLUS loans. (Grad PLUS loans are eligible for Income-Driven Repayment 

plans, while Parent PLUS loans are not.) (4) Consolidation loans are available to borrowers wishing 

to combine multiple existing federal student loans into one loan.

b

Income-Driven Repayment plan estimates do not include the 1994 loan cohort; Education does not 

begin estimating Income-Driven Repayment plan subsidy costs until the 1995 loan cohort.

Table 4: President’s Fiscal Years 2016 and 2017 Budget Estimated Subsidy Rates for All Direct Loans, by Loan Type and 

Repayment Plan

Subsidy rates in percent

Standard Graduated Extended Income-Drivenb

Loan typea 2016 2017 2016 2017 2016 2017 2016 2017

Subsidized Stafford 4.92 5.18 5.34 3.38 4.54 4.15 15.61 17.66

Unsubsidized Stafford -25.57 -23.15 -35.40 -34.37 -31.72 -32.75 15.44 19.43

PLUS -30.94 -31.02 -48.14 -46.86 -47.23 -46.58 7.63 15.27

Consolidation -8.24 -10.62 -8.43 -11.96 -2.03 -6.86 28.67 22.84

Source: GAO analysis of the U.S. Department of Education’s fiscal year 2016 and 2017 budget estimates. | GAO-17-22

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program. Direct Loan subsidy rates represent the estimated cost to the 

government of extending credit over the life of the loan, excluding administrative costs, and 

expressed as a percentage.

Education offers a variety of repayment plans for Direct Loan borrowers. Standard repayment fixes 

borrowers’ monthly payments over a repayment term of 10 years. Graduated repayment offers 

borrowers payments that gradually increase over a 10 year repayment term. Extended repayment 

extends borrowers’ repayment term up to 25 years, and features fixed or graduated repayment 

amounts. Income-Driven Repayment plans tie borrowers’ monthly payments to their incomes, 

lengthen repayment periods beyond the standard 10 years, and offer forgiveness at the end of the 

repayment period.

Fiscal year 2016 budget estimates include loan cohorts 1994-2016. (A loan cohort is the group of 

loans made in a particular fiscal year.) Fiscal year 2017 budget estimates include loan cohorts 1994-

2017.

a

Education issues four types of Direct Loans: (1) Subsidized Stafford loans are available to 

undergraduate borrowers with financial need. (2) Unsubsidized Stafford loans are available to 

undergraduate and graduate student borrowers, regardless of financial need. (3) PLUS loans are 

available to graduate student borrowers as Grad PLUS loans and parents of dependent 

undergraduates as Parent PLUS loans. (Grad PLUS loans are eligible for Income-Driven Repayment 

plans, while Parent PLUS loans are not.) (4) Consolidation loans are available to borrowers wishing 

to combine multiple existing federal student loans into one loan.

b

Income-Driven Repayment plan estimates do not include the 1994 loan cohort; Education does not 

begin estimating Income-Driven Repayment plan subsidy costs until the 1995 loan cohort.
Appendix IV: Supplemental Direct Loan 

Subsidy Cost Data

Page 87 GAO-17-22 Income Driven Repayment Plan Costs

Table 5: President’s Fiscal Years 2016 and 2017 Budget Estimated Loan Volume for All Direct Loans, by Loan Type and 

Repayment Plan

Dollars in millions

Standard Graduated Extended Income-Drivenb

Loan Typea 2016 2017 2016 2017 2016 2017 2016 2017

Subsidized Stafford 223,709 230,978 35,087 37,589 7,872 8,388 37,267 42,991

Unsubsidized Stafford 302,114 314,953 52,077 56,674 15,066 17,991 76,468 96,305

PLUS 107,749 121,551 20,595 23,946 9,059 9,984 20,310 25,054

Consolidation 95,723 112,231 35,365 44,548 21,257 28,520 134,459 190,429

Source: GAO analysis of the U.S. Department of Education’s fiscal year 2016 and 2017 budget estimates. | GAO-17-22

Notes: Education disburses student loans directly to borrowers through the William D. Ford Federal 

Direct Loan (Direct Loan) Program.

Education offers a variety of repayment plans for Direct Loan borrowers. Standard repayment fixes 

borrowers’ monthly payments over a repayment term of 10 years. Graduated repayment offers 

borrowers payments that gradually increase over a 10 year repayment term. Extended repayment 

extends borrowers’ repayment term up to 25 years. Income-Driven Repayment plans tie borrowers’

monthly payments to their incomes, lengthen repayment periods beyond the standard 10 years, and 

offer forgiveness at the end of the repayment period.

Fiscal year 2016 budget estimates include loan cohorts 1994-2016. (A loan cohort is the group of 

loans made in a particular fiscal year.) Fiscal year 2017 budget estimates include loan cohorts 1994-

2017.

Estimates in the 2016 columns include the original loan volume estimate for the 2016 cohort 

contained in the President’s fiscal year 2016 budget. Estimates in the 2017 columns include the 

original loan volume estimate for the 2017 cohort contained in the President’s fiscal year 2017 

budget. Estimates for all other loan cohorts are based on updated loan volume estimates provided by 

Education that exclude loans that are originated but may not be disbursed (e.g., when borrowers 

decide not to attend school).

a

Education issues four types of Direct Loans: (1) Subsidized Stafford loans are available to 

undergraduate borrowers with financial need. (2) Unsubsidized Stafford loans are available to 

undergraduate and graduate student borrowers, regardless of financial need. (3) PLUS loans are 

available to graduate student borrowers as Grad PLUS loans and parents of dependent 

undergraduates as Parent PLUS loans. (Grad PLUS loans are eligible for Income-Driven Repayment 

plans, while Parent PLUS loans are not.) (4) Consolidation loans are available to borrowers wishing 

to combine multiple existing federal student loans into one loan.

b

Income-Driven Repayment plan estimates do not include the 1994 loan cohort; Education does not 

begin estimating Income-Driven Repayment plan subsidy costs until the 1995 loan cohort.
Appendix V: Comments from the U.S. 

Department of Education

Page 88 GAO-17-22 Income Driven Repayment Plan Costs

Appendix V: Comments from the U.S. 

Department of Education
Appendix V: Comments from the U.S. 

Department of Education

Page 89 GAO-17-22 Income Driven Repayment Plan Costs
Appendix V: Comments from the U.S. 

Department of Education

Page 90 GAO-17-22 Income Driven Repayment Plan Costs
Appendix V: Comments from the U.S. 

Department of Education

Page 91 GAO-17-22 Income Driven Repayment Plan Costs
Appendix V: Comments from the U.S. 

Department of Education

Page 92 GAO-17-22 Income Driven Repayment Plan Costs
Appendix VI: GAO Contact and Staff 

Acknowledgments

Page 93 GAO-17-22 Income Driven Repayment Plan Costs

Melissa Emrey-Arras, (617) 788-0534 or emreyarrasm@gao.gov

In addition to the contact named above, Kris Nguyen (Assistant Director), 

Ellen Phelps Ranen (Analyst-in-Charge), Rachel Beers, James Bennett, 

John Karikari, Karissa Robie, Amber Sinclair, and Jeff Tessin made key 

contributions to this report. Additional assistance was provided by 

Deborah Bland, Jessica Botsford, Russ Burnett, Marcia Carlsen, David 

Chrisinger, Cole Haase, Carol Henn, Susan J. Irving, Marissa Jones, 

Sheila McCoy, Erin McLaughlin, Jeffrey G. Miller, Andrew Nelson, Jason 

Palmer, Jessica Rider, Amrita Sen, Brian Schwartz, Michelle St. Pierre, 

Adam Wendel, Charlie Willson, and Rebecca Woiwode.

Appendix VI: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(131353)
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