CIBC Centre suggests expansion of income-based repayment for student loans

With three-year student loan default rates of nearly 15 per cent in both the United States and Canada, concerns naturally arise that some students may be choosing not to repay their loans even when they are in a position to do so. At the same time, there are growing concerns that some low-income borrowers in delinquency or default may be financially unable to meet their loan obligations, prompting calls for expanding current repayment assistance and income-based repayment schemes.

A new study by Western University’s CIBC Centre for Human Capital and Productivity examines student loan repayment, the important role of family support in enabling repayment for many recent students, and the implications of expanding income-contingent repayment schemes for student loans.

The policy brief, developed by CIBC Centre Director Lance Lochner, CIBC Faculty Fellow Todd Stinebrickner and Western PhD student Utku Suleymanoglu, is titled “Family Support and Income-Contingent Student Loans.”

“Expanding income-based repayment under Canada’s Repayment Assistance Plan to automatically cover all borrowers would reduce average student loan payments – and program revenues – by roughly half for borrowers early in their repayment period,” says Lochner. “This is because a more universal income-based repayment scheme would significantly reduce repayment amounts for many low income borrowers who currently make standard payments.”

The brief also suggests that revenue would rise only slightly by inducing borrowers currently in delinquency or default to make income-based payments, since the vast majority of these borrowers have very low income levels and would be asked to pay little or nothing.

The CIBC Centre supports research on issues related to human capital and productivity.  The Centre distributes 2-4 policy briefs per year and occasional conference announcements related to its mandates.

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