Exploring IDR: A Comparison of Financial Situations and Behaviors Between Those in Traditional Student Loan Repayment and Those in Income-Driven Repayment

Abstract

This quantitative, exploratory study (N=266) examines: (1) financial differences between those enrolled in student-loan based Traditional and Income-Driven Repayment (IDR) schemes, (2) factors that link to IDR enrollment, and (3) whether IDR correlates to the likelihood of reporting to save zero dollars in savings and retirement and in being a homeowner. Descriptive tests indicated differences in loan and earnings-related measurements, and other financial differences, favoring those in traditional repayment. Logistic regression reporting Marginal Effects suggested enrollment in IDR correlated with student loan debt starting at $60,000 and upward (ME=0.41-0.59) and income (ME=0.52-0.36) - with lower-middle to middle-income earners being most likely enrolled (GAI $25,000-39,9999 and GAI $40,000-54,999). IDR enrollment was also correlated with being married (ME=-0.24), being male (ME=-0.20), and living in an urban cluster (ME=0.25). Furthermore, IDR enrollment correlated with a higher likelihood of claiming to save “zero” dollars per month (ME=0.25) but not with participation in monthly retirement savings or homeownership. Discussion leans on Rational Choice Theory and Permanent Income Hypotheses to explain why individuals choose enrollment into IDR, calling for financial aid practitioners to provide counsel on the decision, and for additional research and caution as IDR is being examined for modification without a strong understanding of borrowers’ situations.