A bipartisan piece of legislation introduced recently is seeking to significantly simplify the student loan repayment landscape by reducing the options available to borrowers down to two repayment plans.
The bill, introduced by Sens. Richard Burr (R-N.C.) and Angus King (I-Maine), would give new student loan borrowers the option between enrolling in a fixed, 10-year standard repayment plan and a single income-driven repayment (IDR) plan.
Burr, ranking member of the Senate Health, Education, Labor, and Pensions (HELP) committee, in a release said the legislation would help borrowers better understand their student loans and be able to more easily repay them, noting that the mounting federal student loan debt held by millions has taken on a new urgency given the economic challenges of the coronavirus pandemic.
“Although much more needs to be done to address the underlying factors of increased student loan debt, this commonsense, bipartisan bill is a sustainable policy change that promotes fiscal responsibility and helps borrowers determine which system works best for them,” he said.
King said “it is more important than ever” for Congress to “simplify the loan repayment process for the students,” adding that the “maze of options” borrowers face “often leaves students confused about the plan that best fits their needs.”
Many in the higher education and financial aid community agree that the various IDR plans offered to borrowers are confusing and present unnecessary obstacles to enroll. Named the Repay Act, the bill calls for making sweeping changes to the IDR plans and streamlining them into the one option that annually sets borrowers’ repayment amount based on discretionary income, defined as the difference between the borrower’s adjusted gross income and 150% of the poverty line for the borrower’s family size.
The annual repayment amount would be 10% of the portion of discretionary income that is less than $25,000, plus 15% of any remaining discretionary income. The $25,000 “bend point,” as it is coined in the bill, would be adjusted annually for inflation based on the Consumer Price Index.
For married individuals, if both are repaying their student loans under the plan, the amount would be calculated individually using each spouse’s loan amount and half of their combined income. The monthly payment on all covered loans would then be one-twelfth of the annual amount.
Under the simplified IDR plan proposed in the bill, borrowers would have their remaining debt canceled after 20 years of payments or economic hardship deferment if the original principal balance of the loans did not exceed the maximum amount allowable for independent borrowers; or after 25 years of payments or economic hardship deferment if the original principal balance loans did exceed the maximum limit.
The senators pointed out that their legislation ensures borrowers would never have to pay more than 15% of their discretionary income for their monthly student loan payments.
The bipartisan piece of legislation was previously introduced by Burr and King in both 2015 and 2017. With Burr now serving as the ranking member of the Senate HELP committee and a bipartisan desire to simplify student loan payment options, the bill could gain steam this session or be incorporated into a bigger higher education reform package.
While previous versions of the bill called for amending the tax code so amounts discharged due to public service or death and disability would not be taxed, the most recent proposal does not include such a provision, since the Internal Revenue Code already shields loan forgiveness granted as a result of certain employment from taxation, and the Tax Cuts and Jobs Act of 2017 makes discharge due to death or permanent disability tax-free as well.
NASFAA in a letter expressed support for the legislation, underscoring the importance of streamlining the repayment options available to borrowers.
“The Repay Act’s proposal to collapse the different income-driven repayment plans into a single income-driven repayment plan should help to ease the enrollment process for borrowers by removing the need for them to understand and distinguish between many programs with miniscule differences,” the letter states.
Further, the letter points to the added benefits the legislation could bring when the FUTURE Act is fully implemented, which will automate the income verification process for documenting and recertifying borrower income by allowing for direct data sharing between the Internal Revenue Service (IRS) and the Department of Education (ED).
The letter adds that NASFAA hopes to work with the lawmakers on the legislation, noting that a provision in the bill to only offer the repayment options to new borrowers “often work against students by creating additional qualification criteria.”
Publication Date: 3/25/2021