Memorandum 

To: U.S. Department of Education; Negotiated Rulemaking Committee 

From: Persis Yu and Joshua Rovenger, Negotiators for Legal Assistance Organizations that 

Represent Students and/or Borrowers 

Date: Nov. 2, 2021 

Re: IDR Proposals: Structure of Forgiveness and Discretionary Income Threshold 

Introduction 

Income-driven repayment (IDR) plans are meant to help borrowers successfully navigate 

repayment by keeping payments affordable. However, for many low-income borrowers who are 

struggling to make ends meet, IDR payments are simply not affordable, and the prospect of having 

to make them for twenty to twenty-five years is psychologically and financially overwhelming. And 

while struggling to make payments, many low-income borrowers nonetheless see their balances 

grow ever larger, leaving them feeling hopeless -- and resulting in financial devastation if the 

borrower defaults and faces seizure of a far higher balance than they started with. Even those who 

stay in repayment suffer, wondering when they will ever be able to begin saving for their children’s 

education, or their retirement, or to stop living in debt and begin working toward financial security. 

And many borrowers, of course, are already in or approaching retirement--40% of student debt is 

held by borrowers over age 40,1 and for these borrowers, the current IDR framework means that 

many will never be able to move past their debt.

To make IDR work for low-income borrowers, two critical changes are needed: (1) partial IDR

cancellation should occur annually, rather than as “all-or-nothing” relief at the end of 20+ years, so 

that borrowers experience steady progress toward paying off their loan and can pay them off more 

quickly, and (2) the amount of income protected for necessary expenses should be increased. 

1) IDR Should Provide Annual Cancellation and Should Cap the Total Repayment Term at 

15 Years

Twenty to twenty-five years feels like a life sentence to most borrowers and is too long a 

repayment period. This is especially true for low-income borrowers who tend to have lower 

balances. Year after year, most low-income borrowers watch their balances increase and many 

cannot overcome bureaucratic barriers that ultimately push them out of an IDR plan. 

Low-income student loan borrowers need a shorter and easier path to cancellation. The current 

repayment period fails to provide relief to borrowers and leads to borrowers feeling discouraged 

and crushed under the weight of their debt for decades.2 We recommend that all student loan 

1 https://www.newyorkfed.org/microeconomics/topics/student-debt. 

2 Jim Crow Debt: How Black Borrowers Experience Student Loans, EdTrust at 7-10(Oct. 20, 2021) 

https://edtrust.org/wp-content/uploads/2014/09/Jim-Crow-Debt_How-Black-Borrowers-ExperienceStudent-Loans_October-2021.pdf; Borrowers Discuss the Challenges of Student Loan Repayment, Pew 
borrowers should be in IDR repayment only for a maximum of fifteen years before they receive 

cancellation. In addition, we recommend that the Department cancel outstanding interest and a 

percentage of principal each year, with a varying percentage of principal cancelled depending 

on the borrower’s income. 

A) Cancellation Should Happen Annually So That Borrowers Can See Their 

Balance Decrease Each Year 

A critical problem with the current structure of IDR is that the lowest income borrowers never 

see their balances decrease. Most recently available data shows only 32 have ever received 

cancellation in IDR even though 4.4 million borrowers have been in repayment for over 20 

years.3 Many of the borrowers we work with express skepticism that IDR will pay off for them, 

and given the voluminous problems with the administration of IDR documented in lawsuits and 

government enforcement actions,4that skepticism is warranted. 

Flat or inflating balances harm borrowers both psychologically and financially. In a recent NPR 

interview, John Beshears, an economist at Harvard Business School who specializes in 

financial choices and decision-making, said that “[b]eing heavily indebted does change your 

cognitive capacity.”5 He continued that “over-indebtedness is dehumanizing to the borrower” 

and described recent research that suggests that being relieved of debt has multiple benefits, 

including increasing workers’ productivity. Similarly, research by Di Maggio, Kalda, and Yao 

found that when borrowers’ student loan debt was discharged, borrowers were significantly less 

likely to be delinquent on other forms of debt (like credit cards, auto loans, or mortgages), 

borrowers’ geographic mobility increased, and they were able to earn more income.6 This 

research mirrors what we often hear from low-income borrowers; large lingering balances impair 

borrowers’ credit scores and/or creates a debt-to-income ratio that makes borrowing an auto 

Charitable Trusts at 13-14, 32-33 (May 20, 2020) https://www.pewtrusts.org/-

/media/assets/2020/05/studentloan_focusgroup_report.pdf; 

3 Education Department’s Decades-Old Debt Trap: How the Mismanagement of Income-Driven 

Repayment Locked Millions in Debt, National Consumer Law Center & Student Borrower Protection 

Center (March 2021) https://www.nclc.org/uncategorized/issue-brief-education-departments-decades-olddebt-trap-how-the-mismanagement-of-income-driven-repayment-locked-millions-in-debt.html; Education 

Department Responses to Data Request by Senator Warren (April 2, 2021) 

https://www.warren.senate.gov/imo/media/doc/Education%20Department%20Response%20to%20Sen%

20Warren%20-%204-8-21.pdf. 

4

 See CFPB Sues Nation's Largest Student Loan Company Navient for Failing Borrowers at Every Stage 

of Repayment, Consumer Fin. Prot. Bureau (Jan. 18, 2017) https://www.consumerfinance.gov/aboutus/newsroom/cfpb-sues-nations-largest-student-loan-company-navient-failing-borrowers-every-stagerepayment/; MA AG Healey Sues to Protect Public Service Loan Forgiveness (Aug. 23, 2017); 

https://www.mass.gov/news/ag-healey-sues-to-protect-public-service-loan-forgiveness; Federal appeals 

court ruled Pennsylvania can continue its lawsuit against Navient https://www.attorneygeneral.gov/wpcontent/uploads/2020/07/2020-07-27-Navient-order.pdf

5 NPR, How debt can affect our decision making (Oct. 29, 2021); Elina Turunen & Heidi Hiilamo, Health 

Effects of Indebtedness, a Systemic Review, BMC Public Health (2014) 

https://bmcpublichealth.biomedcentral.com/articles/10.1186/1471-2458-14-489 (“Self-reported problems 

of indebtedness and financial stress were strongly associated with depression, and indebtedness was 

also associated with depression-related symptoms such as anxiety and anger”)

6 Marco Di Maggio, Ankit Kalda, & Vincent Yao, Second Chance: Life Without Student Debt (2019) 

https://www.nber.org/system/files/working_papers/w25810/w25810.pdf
loan or mortgage untenable. With never ending debt, borrowers struggle to pay for housing and

transportation to work, and are dependent on credit cards or other forms of high-cost debt to 

pay for life’s necessities. They are stuck in debt and negative net worth, and worry they will 

never be able to start building assets and positive net worth. This has particularly concerning

ramifications for the racial wealth gap. 

For these reasons, we recommend the Department restructure loan cancellation to annually 1) 

cancel any unpaid interest and 2) cancel an amount based upon a percentage of the borrower's 

principal balance when they restarted repayment or when they entered IDR (whichever is

higher). This plan would ensure that borrowers would see progress being made on their loan 

balances and would avoid the “all or nothing” approach adopted by current IDR plans. 

B) The Amount that is Cancelled Annually Should be Based Upon the Borrower’s 

Income

To address the recognized problem that low-income, often low-balance borrowers are left in 

repayment far too long under current IDR plans, and to further target the benefits of IDR to 

lower income borrowers, we recommend that Department develop an annual cancellation 

formula that would provide cancellation to the lowest income borrowers after 3 years, scaling up 

to 15 years for the highest-income borrowers. To accomplish this, the Department may scale 

the amount of loan cancellation that a borrower receives each year based upon their income at 

the last time that the Department certified the borrower’s income. 

Borrowers who live in persistent poverty (150% FPL) should be able to have their loans 

cancelled after 3 years in IDR, which the Department could accomplish by providing 

cancellation of 33.3% of their balance each year their earnings are below this threshold. This 

would provide the greatest benefit to borrowers who rely on means-tested public benefits such 

as Temporary Assistance for Needy Families (TANF) or the Supplemental Nutrition Assistance 

Program (SNAP).

7 Based on the eligibility criteria of SNAP (maximum income at 130% of the 

federal poverty level)8 and TANF (maximum income varies by state but is almost always below 

100% of the federal poverty level),9 borrowers in these groups would qualify for $0 payments 

under even the current income-driven repayment income thresholds (maximum income at 150% 

of the federal poverty level). We should not be keeping these borrowers in debt for decades.

7 Delaney, A. 2017, December 6. “How Long Do People Stay on Public Benefits?” The Huffington Post. 

Available at https://www.huffpost.com/entry/public-benefits-safety-net_n_7470060. Although we don’t 

know what percent of student borrowers meet the 3-year threshold for public assistance, the Census 

Bureau’s longitudinal survey data establishes that 43% of the 1 in 5 individuals who participated in 

means-tested public assistance during the 2009-2012 period did so for more than 3 years. This is likely 

an upper bound as the research also states that higher educational attainment reduces public assistance 

participation.

8 Center on Budget and Policy Priorities. September 2020. A Quick Guide to SNAP Eligibility and 

Benefits. Available at https://www.cbpp.org/research/food-assistance/a-quick-guide-to-snap-eligibilityand-benefits.

9 Falk, G. 2014, July 22. “Temporary Assistance for Needy Families (TANF): Eligibility and Benefit 

Amounts in State TANF Cash Assistance Programs.” Congressional Research Service. Available at 

https://fas.org/sgp/crs/misc/R43634.pdf.
2) The Discretionary Income Threshold Should be Significantly Increased

Although current income-driven repayment plans often offer lower monthly payments than the 

standard ten-year repayment plan, many borrowers still struggle to afford these reduced 

payments in combination with other critical expenses like housing, childcare or medical costs, 

transportation, and payments on private student loans. This problem is particularly acute for 

low-income borrowers who earn above 150% of the federal poverty level (FPL) but who still do 

not earn enough to meet their families’ basic living expenses, much less to meet those 

expenses and make federal student loan payments month after month for years or decades. 

Contrary to the assumptions underlying current IDR formulas, many borrowers who earn more 

than 150% of the FPL simply do not have any discretionary income--every dollar is needed to 

pay for necessities, and many are still in the red. To make loans truly affordable for low-income 

borrowers, and to ensure that federal student loan debt does not prevent low-income borrowers 

from achieving even modest financial security, it is critically important for the Department to 

substantially increase the amount of income that is protected as “non-discretionary” when 

calculating monthly payment amounts. 

A) Increasing the Amount of Protected Income Provides More Protection to Lowincome Borrowers than Changing the Percentage of Income Owed

A borrower’s monthly payment under an IDR plan is determined by two main variables: (A) the 

“income protection threshold,” or “discretionary income threshold,” which protects a certain 

amount of income recognized as needed to meet basic needs and excludes it from being 

considered as part of a borrower’s discretionary income (under REPAYE, this threshold is set at 

150% of the federal poverty level), and (B) the percentage of discretionary income that a 

borrower is required to put toward loan payments (10% under REPAYE). To provide more 

affordable monthly payments, the Department can change either or both of these variables. 

Changing the threshold of protected income has a more pronounced effect on low- and 

moderate-income borrowers than changing the percentage of discretionary income, and so 

should be prioritized. By increasing the income protection threshold above its current, 

insufficient level, the low- and moderate-income borrowers who are struggling the most with 

student loan debt receive a targeted benefit that lowers their monthly payments and better 

enables them to cover other living costs.

B) The Amount of Income Protected is Far Too Low to Meet Basic Expenses and 

Should be Significantly Increased 

The current threshold between protected and “discretionary” income for income-driven 

repayment, 150% of the current federal poverty level (FPL), is far too low to meet our clients’ 

basic needs. Below is a table reflecting the amount of income protected for necessary expenses 

under current IDR plans for families of different sizes:
# of Persons in 

Household

150% FPL

1 $19,320

2 $26,130

3 $32,940

4 $39,750

As an example, current IDR formulas assume that for a single parent with two children, any 

income over $32,940 a year is “discretionary” and available for student loan payments. But in 

Boston, where NCLC is based, the average monthly rent for a non-luxury two-bedroom 

apartment is over $2,500 per month--or $30,000 per year.10 Just paying for housing would 

consume the vast majority of the $32,940 in protected income, and a parent has many more 

essential needs to pay for: food, childcare, healthcare, school supplies, clothing, utilities, and 

transportation, to start. Indeed, under the Department of Housing and Urban Development’s 

income standards for assessing need for housing assistance, a family of three in Boston would 

be considered “extremely low-income” if they earned less than $36,250--an amount well in 

excess of the 150% of FPL protected in IDR. Moreover, a family of three in Boston would be 

considered “low-income” under the HUD standards if they earned less than $90,95011-- which is 

more than 400% of FPL ($87,840). 

This example illustrates that the assumption underlying current IDR formulas--that any income 

over 150% of FPL is “discretionary” and not essential to meet basic needs, is wildly incorrect. 

The problem is rooted in the federal poverty level methodology itself. The Federal Poverty 

Guidelines are set based on a widely criticized and outdated formula: the annual cost of basic 

food for a household of a given size in 1964, multiplied by three, and then indexed for inflation.12

It’s not clear that this calculation was ever a good measure of poverty, but it is particularly 

inappropriate now since the cost of food has decreased since 1964 while other costs--

particularly housing, childcare, and healthcare have increased. As a result, food costs are much 

less than one-third of most people’s budgets today, and the resulting FPL are far too low.13

Additionally, a major flaw in both the federal poverty levels and the current structure of the 

income driven repayment formula is that they do not take into consideration variations in 

borrowers’ necessary expenses. Even “living wage” calculators, which generate living and “selfsufficiency” wage estimates by family size and location, and which typically find earnings well in 

10 https://www.wbur.org/news/2021/09/17/greater-boston-rental-housing-allston-covid. 

11 https://www.huduser.gov/portal/datasets/il/il2021/2021summary.odn. 

12 https://ssir.org/articles/entry/beyond_the_poverty_line. 

13 Kolesnikova, N.A., & Liu, Y. 2012, July 1. “Understanding Poverty Measures and the Call to Update 

Them.” Federal Reserve Bank of St. Louis. Available at https://www. stlouisfed.org/publications/regionaleconomist/july-2012/understanding-poverty-measures-and-the-call-to-update-them. 
excess of 150% of FPL are necessary to cover basic expenses, only look at “typical” 

expenses.14 Within the pool of student loan borrowers, many borrowers live in regions with a 

high cost of living and/or have necessary expenses that are not “typical.” In our experience, 

borrowers of color and borrowers with disabilities or who have family members with disabilities 

often have non-typical expenses because of higher than average medical expenses, or because 

they are caring for extended family members. The racial wealth gap also means that many 

borrowers of color have fewer total resources available and must preserve a greater amount of 

their income to absorb shocks in expenses and income. Without an administratively complicated 

process of determining the total resources and total expenses of each borrower, the income 

driven repayment formula must be generous enough to ensure that all borrowers have an 

affordable repayment option. 

What is the right amount of income to protect for basic needs? Research suggests that 

families need an income of at least 300% of the current federal poverty level to afford basic, 

essential living expenses.15 We also know that basic expenses are higher still for many families 

due to high housing, childcare, and medical expenses as a result of both regional cost 

differences and differences in individual medical, family, and health situations. In the absence of 

a mechanism to readily consider such individual and regional differences in necessary 

expenses, we therefore propose a slightly higher threshold of 400% of FPL. This amount would 

be intended to protect the amount of income needed to meet necessary expenses for borrowers 

throughout the country with different family structures, childcare needs, and medical needs. 

14 See, e.g., http://www.selfsufficiencystandard.org/, https://livingwage.mit.edu/. 

15 See, e.g., Kinsey Dinan, Nat’l Ctr. for Children in Poverty, Budgeting for Basic Needs: A Struggle for 

Working Families, (2009), http://www.nccp.org/publications/pdf/text_858.pdf (“It takes an income of about 

1.5 to 3.5 times the official poverty level . . . to cover the cost of a family’s minimum day-to-day needs”); 

Insight Ctr. for Cmty. Econ. Dev., 2011 California Family Economic Self-Sufficiency Standard (2011),

www.insightcced.org (finding a family of four in California would need nearly triple the federal poverty 

guideline to cover basic needs).