Description of the Problem
The PAYE was an initiative of the federal government to help college students pay their outstanding loans. The follow-up became a problem for the federal government, and it was this challenge that it was trying to solve with the PAYE and the REPAYE plans.
These two programs are among the income-based repayment plans adopted by federal student borrowers and have since become famous. To sign up for this program, financial distress had to be long-established, to the point where the borrower could not make the required payments on a standard ten-year repayment plan.
The program was first initiated by U.S. President Barack Obama in October 2011 and is also known as the ‘Obama Student Loan Plan.’ The most outstanding component of this plan is to cap monthly loan repayments at 10% of your income and give loan forgiveness after 20 years of qualified payments (Congressional Research Service [CRS], 2024).
The problem with the PAYE plan was that it was limited to students who received William D. Ford Direct Loans after Oct. 1, 2007, and had funds disbursed to them on or after Oct. 1, 2011. Those loans include direct loans, subsidized and unsubsidized loans, graduate PLUS loans, and direct consolidation loans made after Oct. 1, 2011, unless they contain direct or FFEL loans made after Oct. 1, 2007.
Ethical Thinking
The most important questions while looking at this would be fairness, responsibilities, empathy, and rights.
- Fairness should guide how you can best balance the legitimate interests of everyone. To achieve this, every individual is treated according to their capability when it comes to the loan repayment plan, and this repayment plan can be changed anytime to the one best suited for them at that specific point or stage for free.
- It brings out the duties or obligations of everyone who benefits from this program. It can be dispensed with by ensuring that every beneficiary repays this loan within the stipulated time. The sustainability of this program depends heavily on loan repayment by all the beneficiaries. It makes responsibility a key point here.
- It involves profoundly caring for those involved. The management involved in this Programme needs to care deeply to understand and be able to deal with individual cases that may arise while administering the PAYE Programme.
- If the amount you would have to pay under the PAYE or IBR plan (based on your salary and family size) is more than what you would have to pay under the 10-year Standard Repayment Plan, you won’t benefit from having your monthly payment amount based on your income, so you don’t qualify.
Evidence
Critics have pointed out changes to the Programme. It came into existence after being passed in Congress and signed by the then-president of the U.S.A. They argue that the market risk involved in making the loans was not considered. They were of the opinion that this Programme forces many Americans to pay for the ‘forgiveness’ even when they don’t have a bachelor’s degree themselves. The subsidies in the long term can drive the cost of education up.
Public Service Loan Forgiveness was designed by the College Cost Reduction and Access Act of 2007 to reduce the burden of student loans for highly qualified graduates and encourage them to pursue professions in the public service sector.
This forgiveness option applies exclusively to Direct Federal Student Loans. Private student loans are not eligible for Public Service Loan Forgiveness. To obtain loan forgiveness under this program, you must be a full-time worker in a public service job and make ten years of on-time monthly payments after consolidating your federal loans into a qualified repayment program (Federal Student Aid, n.d.).
Influence of Context
The PAYE Programme was regarded as the long-term solution for college students who have been struggling for a long time to repay their college education loans. In most cases, it was assumed that some of them might not be able to repay the whole amount due to financial challenges, and in such cases, the law also allows for loan forgiveness after 20 years of payments and after ten years for those in “public service”—a broad category that includes government and nonprofit workers.
Politics is significantly affecting this Programme. President Trump has proposed changes to this program, but as of July 2017, none of the changes have been legislated. It is a result of a change in government from the one that initiated it. The result of this might be a wholly different PAYE term (CRS, 2024).
The economy is also affecting the initial idea, along with the forgiveness plan, since some Americans see this as a burden on them. Even the growing number of borrowers expecting to have their loans forgiven is enormous, thus stretching the money allocated in the budget to cater to this programme (CRS, 2024).
My Position as a Student
I believe the government should strive to sustain the PAYE loan repayment plan for college students. By doing this, it will be able to grow the economy in the long run since more students will be able to access college education despite their financial constraints. Also, the authorities involved in making sure that the loans are paid back should be capable of doing this with all the fairness required since failure to observe such fairness will disadvantage some borrowers whose income is low compared to the average wage. Although this action may mainly affect the economy since the higher the number of borrowers, the higher the number of defaulters, the institution should devise stringent measures to deal with these shortcomings.
In 2013, only 124,000 people enrolled in the PAYE plan. A year later, Obama directed the Secretary of Education to suggest regulations to cap credits for possibly another 5 million people. The loan program variations and expansions added an extra $22 billion to the price tag. It shows the high rate of growth and development of this initiative.
Conclusion
The government should view the risk the way private lenders would, something known as Fair Value Accounting. The government doesn’t use Fair Value Accounting; instead, it follows the Federal Credit Reform Act of 1990, or FCRA, when making forecasts. It has estimated those numbers more accurately because, unlike a bank, the federal government isn’t required to make a profit and is better able to branch out. The Obama administration has promised to work on slowing the soaring costs, for instance, by showing prospective borrowers what they’re getting for their money. By doing that, the whole project would become a success celebrated by all citizens (CRS, 2024).
References
Congressional Research Service. (2024). Federal student loans made through the William D. Ford Federal Direct Loan Program: Terms and conditions for borrowers (CRS Report R45931). Congress.gov. https://www.congress.gov/crs-product/R45931
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