Advisor information presented at November 4, 2021 Negotiated Rulemaking 

1. IDR Simulations: Understand implications of changes to income assessments and income protection at 

various levels of income and debt 

2. Supplementary documents 

• Pew Charitable Trusts letter: Scenarios using historical data for income, debt, income growth, and family sizes 

• Methodology details available here: https://www.pewtrusts.org/en/research-and-analysis/speeches-andtestimony/2021/10/27/pew-calculates-potential-effects-of-income-driven-repayment-reform 

• Dr. Lesley Turner: The Importance of “Choice Architecture” for Student Loan Repayment Decisions & Outcomes 

• Dr. Dominique Baker: Race, Racism, and Student Loans 

Note: This document was prepared by Dr. Rajeev Darolia, Advisor for economic and higher education policy analysis and data, for the 2021 

Affordability and Student Loans Committee Meetings as part of the 2021-22 US Department of Education Negotiated Rulemaking for Higher 

Education. Please forgive any errors in analyses produced in an expeditious manner. 

I appreciate research assistance from Emily Wilcox and benefitted from input from Lexi West at the Pew Charitable Trusts. 

1 
Fictional borrower example (Miles): Caveats and Inputs/Assumptions 

CAVEATS 

• Estimates are approximations for illustrative purposes 

about individual repayment scenarios 

• Does not incorporate common repayment events that 

can affect borrower outcomes, such as periods of 

unemployment, nonpayment, forbearance, deferment, 

etc. 

• Assumes no capitalized interest during the repayment 

period; Assumes no subsidized unpaid interest; Counts 

all unpaid interest as forgiven at the end of the period. 

• Not modeling eligibility restrictions for IBR plans 

• Results differ from the FSA loan simulator because of 

simplified assumptions regarding inflation and because 

of other simplifying assumptions like no assumed grace 

period or temporary repayment flexibilities due to the 

COVID-19 Emergency. 

INPUTS & ASSUMPTIONS 

• Income: 15K, 25K, 35K, 45K, 55K 

• Income growth assumption: 2.5% annually 

• Student loan debt: $30,000 

• Household size: 1 

• Larger household sizes will have higher income protection 

• Interest rate: 3.73% 

• Inflation assumption: 2.4% annually 

2 
Fictional borrower example (Miles), Under Various Income Protection Assumptions 

Student loan debt = $30,000; Income = $25,000 

Standard 

Repayment 

IBR (2014) 

Current Case 1 2 3 4 

Income Protection (%) N/A 150% 175% 200% 250% 300% 

Monthly payment $300 $47-$80 $20-$38 $0 $0 $0 

% of Discretionary Income N/A 10% 10% “10%” “10%” “10%” 

% of Gross Income 14%-9% 2.4%-2.3% 1.2%-1.0% 0% 0% 0% 

Total paid $35,988 $15,003 $6,860 $0 $0 $0 

Total forgiven $0 $37,377 $45,520 $52,380 $52,380 $52,380 

Payments 120 240 240 “240” “240” “240” 

Interest-only payments 0 240 240 0 0 0 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator because of 

simplified assumptions regarding inflation and because of other simplifying assumptions like no assumed grace period or temporary repayment flexibilities due to the COVID-19 Emergency. Does 

not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of the period. 

At this income level, IBR leads to lower total amount paid and a larger amount of forgiveness, but longer repayment periods. As income protection gets higher than 200%, at this 

level of income, Miles would get little to no benefit from higher levels of income protection. 3 
Fictional borrower example (Miles), Under Various Income Protection Assumptions 

Student loan debt = $30,000; Income = $45,000 

Standard 

Repayment 

IBR (2014) 

Current Case 1 2 3 4 

Income Protection (%) N/A 150% 175% 200% 250% 300% 

Monthly payment $300 $214-$290 $187-$268 $160-$249 $107-$178 $53-$94 

% of Discretionary Income N/A 10% 10% 10% 10% 10% 

% of Gross Income 8%-5% 5.8%-5.7% 5.1%-5.0% 4.4%-4.3% 3.0%-2.8% 1.6%-1.4% 

Total paid $35,988 $38,480 $39,764 $42,088 $33,520 $17,234 

Total forgiven $0 $0 $0 $0 $15,114 $35,146 

Payments 120 154 177 210 240 227 

Interest-only payments 0 0 0 0 0 13 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator because of simplified 

assumptions regarding inflation and because of other simplifying assumptions like no assumed grace period or temporary repayment flexibilities due to the COVID-19 Emergency. Does not take into 

account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of the period. 

At this level of income, with lower income protection, IBR plans lower monthly payments, but lead to higher total paid and longer repayment. As income protection gets higher than 

225%, at this level of income, Miles would get benefits from higher levels of income protection in the form of lower payments, lower total amount paid, and greater loan forgiveness. At 

the relatively highest levels of income protection, may even start to make a series of interest-only payments. 4 
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Fictional borrower example (Miles), Under Various Income Protection Assumptions 

Student loan debt = $30,000, Total Paid 

Blue dashed line is total amount paid under 

standard repayment plan 

Markers are total amount paid for a 

borrower with a specified level of income 

(plotted lines) and income protection (x-axis) 

Relatively low-income borrowers 

At all income protection levels  Generally 

better off in IBR plans 

Little to no marginal benefit as income 

protection gets to higher levels 

Relatively high-income borrowers 

At lower income protection levels  May be 

better off in the standard plan 

Payments may be higher in IBR and they would pay 

more in total 

(And may not qualify for IBR) 

At higher income protection levels  payments 

may drop below standard plan 

As income protection increases to relatively 

high levels, benefits largely accrue to higher 

income borrowers 

Less paid, Higher levels of loan forgiveness 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator because of simplified assumptions regarding inflation and because of other simplifying 

assumptions like no assumed grace period or temporary repayment flexibilities due to the COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

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Fictional borrower example (Miles), Under Various Income Protection Assumptions 

Student loan debt = $30,000, Average Monthly Payment as a % of Gross Income 

For relatively low-income borrowers, little to 

no marginal benefit as income protection 

gets to higher levels 

Payments get relatively small for higher 

income borrowers 

May lead people to pay a smaller portion of their 

incomes and having longer repayment periods 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator because of simplified assumptions regarding inflation and because of other simplifying 

assumptions like no assumed grace period or temporary repayment flexibilities due to the COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

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Share of Income Share of Income 

Fictional borrower example (Miles), Under Various Income Share Assumptions 

Student loan debt = $30,000 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator because of simplified assumptions regarding inflation and because of other simplifying 

assumptions like no assumed grace period or temporary repayment flexibilities due to the COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

the period. 

Blue dashed line is total amount paid under standard repayment plan. Markers are total amount paid for a borrower with a specified level of income (plotted lines) and income protection (x-axis) 

7 
Changes to Income Share and/or Income Protection? 

• Increasing the income protection or reducing the income share will reduce 

the monthly payment 

• Typically will lead to longer repayment length and higher total amount paid 

• At high levels of debt, this could also mean that payments do not cover interest 

• Potentially leading to growing balances, longer repayment length, and higher total amount paid 

• All else equal, raising income protection can lead to a larger number of “zero 

payment” borrowers 

• Because income protection can be larger than borrower income 

• As income protection increases to relatively high levels, benefits largely accrue to 

higher income borrowers 

• And may lead to higher income people to be in debt for longer, and making interest only payments 

• Consider goals and design principles 

8 
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Income level as % of Marginal Assessment 

Poverty Line Rate 

Income ≤ 150% 0% 

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Assumptions: Household size = 1 

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Scenario 1 

Income ≤ 150% 0% 

150 < Income ≤ 300% 5% 

Income > 300% 10% 

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Income ≤ 200% 0% 

200 < Income ≤ 300% 5% 

300 < Income ≤ 350% 7.5% 

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In these scenarios, no one does worse than current plan 

Could make an already complicated system even more complicated 

Assumptions: Household size = 1 11 
Additional figures & tables 

12 
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Fictional borrower example (Miles), Under Various Income Protection Assumptions 

Student loan debt = $30,000, Total Paid – Alternative View with Income on X-axis 

Blue dashed line is total amount paid under 

standard repayment plan 

Markers are total amount paid for a 

borrower with a specified level of income (xaxis) and income protection (plotted lines) 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator because of simplified assumptions regarding inflation and because of other simplifying 

assumptions like no assumed grace period or temporary repayment flexibilities due to the COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

the period. 13 
Fictional borrower example (Miles), Under Various Income assumptions 

Student loan debt = $15,000 

Standard 

Repayment 

IBR (2014) 

Current Case 1 2 3 4 

Income N/A $15,000 $25,000 $35,000 $45,000 $55,000 

Monthly payment $150 $0 $47-$80 $131-$169 $214-$293 $297-$329 

Total paid $17,994 $0 $15,003 $18,343 $16,933 $16,473 

Total forgiven $0 $26,190 $10,098 $0 $0 $0 

Payments 120 “240” 240 124 74 53 

Interest-only payments 0 0 240 0 0 0 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator 

because of simplified assumptions regarding inflation and because of other simplifying assumptions like no assumed grace period or temporary repayment flexibilities due to the 

COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

the period. Under current rules, in some scenarios relatively high-income borrowers would not be eligible for IBR because payments would be higher than under standard repayment 

plans. 14 
Fictional borrower example (Miles), Under Various Income assumptions 

Student loan debt = $30,000 

Standard 

Repayment 

IBR (2014) 

Current Case 1 2 3 4 

Income N/A $15,000 $25,000 $35,000 $45,000 $55,000 

Monthly payment $300 $0 $47-$80 $131-$214 $214-$290 $297-$364 

Total paid $35,988 $0 $15,003 $40,548 $38,480 $35,596 

Total forgiven $0 $52,380 $37,377 $4,950 0 0 

Payments 120 “240” 240 240 154 108 

Interest-only payments 0 0 240 0 0 0 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator 

because of simplified assumptions regarding inflation and because of other simplifying assumptions like no assumed grace period or temporary repayment flexibilities due to the 

COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

the period. Under current rules, in some scenarios relatively high-income borrowers would not be eligible for IBR because payments would be higher than under standard repayment 

plans. 15 
Fictional borrower example (Miles), Under Various Income assumptions 

Student loan debt = $45,000 

Standard 

Repayment 

IBR (2014) 

Current Case 1 2 3 4 

Income N/A $15,000 $25,000 $35,000 $45,000 $55,000 

Monthly payment $450 $0 $47-$80 $131-$214 $214-$347 $297-$413 

Total paid $53,982 $0 $15,003 $40,458 $66,092 $58,741 

Total forgiven $0 $78,570 $63,567 $36,331 $0 $0 

Payments 120 “240” 240 240 240 167 

Interest-only payments 0 0 240 36 0 0 

Estimates only. Assumed inputs: Income growth = 2.5% annually; Household size = 1; Interest rate = 3.73%; Inflation = 2.4% annually. Results differ from the FSA loan simulator 

because of simplified assumptions regarding inflation and because of other simplifying assumptions like no assumed grace period or temporary repayment flexibilities due to the 

COVID-19 Emergency. Does not take into account eligibility rules. Assumes no capitalized interest during the repayment period; Counts all unpaid interest as forgiven at the end of 

the period. Under current rules, in some scenarios relatively high-income borrowers would not be eligible for IBR because payments would be higher than under standard repayment 

plans. 16 
Contact: 

Rajeev Darolia, PhD 

Wendell H. Professorship of Public Policy 

Associate Professor of Public Policy & Economics 

University of Kentucky

859-323-7522 

Rajeev.Darolia@uky.edu 

17