WP 24-08/R – Rising student loan debt and concerns over unaffordable payments provide rationale for “income-driven repayment” (IDR) plans, which aim to protect borrowers from default and resulting financial consequences by linking payments to income.
A previous version of this working paper was originally published in March 2024.
We estimate the causal effect of IDR payment
burdens on loan repayment and attainment for several cohorts of first-time IDR applicants
using a regression discontinuity design. Borrowers who are not required to make payments see
short-run reductions in delinquency and default risk, primarily due to lower costs of inattention,
but these effects fade over the longer run as some borrowers become disconnected from the
student loan repayment system.
