NEW YORK (MainStreet) — The Department of Education (ED) approved the Pay As Your Earn (PAYE) student loan repayment plan this month that is designed to cut down on the wave of loan defaults that have been a drag on ED's student loan portfolio--and on the lives of borrowers.

PAYE is similar to the existing Income-Based Repayment plan, another income-driven federal solution designed to reduce student loan payments. Some6 million more Americans would become eligible for PAYE when it goes into effect this fall. PAYE caps monthly bills at 10% of a borrower’s “discretionary” income, defined as the amount above 150% of the federal poverty line. The program typically lowers payments by hundreds and sometimes thousands of dollars.

Only borrowers who took out Federal loans after 2007 will be eligible for PAYE; those with older loans are left with IBR, which sets payments at 15% of discretionary income. Private student loans aren’t eligible.

Congress passed legislation creating Pay As Your Earn in 2010 that was signed into law by President Obama in 2012. In February, ED released figures that indicated there would be a $9 million price tag for expanding the program to additional students.

Secretary of Education Arne Duncan said in a July 7 statement that expanding PAYE is intended to provide “targeted benefits to even more borrowers so they can stay current on their loans and furthers our commitment to lifting the burden of crushing student loan debt.”

But critics say this will exacerbate student debt by prolonging the time it takes to pay off the loan and adding to the cost of the debt.

"The Pay As You Earn expansion is an imaginary solution to the student debt crisis that just pushes the problem further down the road," said Andrew Josuweit, CEO of Student Loan Hero. "Rather than helping college grads become financially healthy, the PAYE expansion actually increases the government’s profit per borrower by having them accrue more interest.” According to the Congressional Budget Office, even if these programs make student loans more costly to taxpayers in the near term, they are still expected to generate a profit in the long run.

The Federal government is likely as concerned about the impact that student loans are having on the private sector economy as on borrowers. People who have to carve out money for their student loan payments have less—or nothing--to spend on auto loans, mortgages or the cost of setting up a household when they leave school.

An April 10, 2015 report from the St. Louis Fed concludes that one in three Americans with student loans—31.5% of borrowers—are a month behind in their payments. That’s much higher than the delinquency numbers reported by the Department of Education and the New York Fed.

This excludes borrowers who don’t have to make payments because they are still in school or have been granted grace periods. At least some of those loans are delinquencies-in-waiting. By reducing—and spreading out—the payments, the day of reckoning could be deferred for many borrowers.