Congressional Democrats Unveil New Plan to Simplify Student Loan Repayment

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

As policymakers mull another extension to the pause on student loan payments and interest accrual, and many borrowers are already struggling with the currently available repayment options, congressional leaders are now offering more proposals aimed at simplifying the repayment process.

The latest legislation, citing the $1.6 trillion in student loan debt held by borrowers, comes from House Appropriations Chairwoman Rosa DeLauro (D-Conn.), who along with a group of bicameral Democrats seeks to simplify the repayment process by creating only two repayment options for loans entering repayment after July 1, 2022: one fixed, 10-year repayment plan, and one income-based repayment plan.

The first plan would be the same as the current 10-year standard repayment plan, with equal monthly payments that would enable full repayment of the loan and any accrued interest in 10 years.

The second repayment option would be capped at 20 years of payments and would require a borrower to pay 10% of their income above the poverty line each month. Borrowers currently enrolled in an existing income-based repayment plan would have the option to enroll in the new income-based plan as well.

The bill would also end origination fees and create auto-recertification (with an opt-out provision) for income-driven repayment — two policy changes that NASFAA has long advocated for. The bill also would eliminate statutory interest capitalization.

In addition, the measure would make a number of changes for borrowers struggling to make monthly payments by limiting federal debt collections amounts through garnishment, deduction, offset, or seizure to no more than a borrower would pay under the income-based repayment plan, removing the requirement that borrowers pay collections costs, replacing deferments and forbearance with a “pause payment” option that would not capitalize interest, and rehabilitating delinquent loans by automatically enrolling those borrowers (with an opt-out provision) in the income-based repayment plan.

The bill contains an option for borrowers holding joint consolidation loans with a spouse or ex-spouse to request the loans be separated as well.

Several changes to student loan documents and disclosures are proposed in the bill, including a renaming of the Master Promissory Note to the Student Loan Contract. The bill includes instructions to the Department of Education to streamline and simplify loan disclosures using input from consumer testing.

“For our next generation to fulfill their dreams, contribute to economic innovation and create a prosperous future for themselves and their families, we must simplify the repayment process and make it more affordable for student borrowers,” DeLauro said. “Congress has an obligation to solve this problem.”

The bill has two House cosponsors and the Senate’s companion measure introduced by Jeff Merkley (D-Ore.) had nine cosponsors upon introduction.

The current moratorium on federal student loan repayments and interest accrual is slated to expire in May. While the relief could again be extended, with Democrats pushing Biden to use executive authority to keep the pause in place through the rest of 2022, the administration and Congress will still need to sort through how they might go about restarting repayments and communicate what borrowers will need to do to ensure a smooth reentry into repayment.

According to Merkley’s office, the legislation aims to address the loan portfolio following the White House’s decision on whether they will go about some form of loan cancellation and make the remaining balances held by borrowers currently in repayment less cumbersome.

“Should President Biden use his executive powers to cancel federal student loan debt up to a set amount per borrower, many borrowers will still have a remaining balance to pay off,” Merkley’s office said. “This bill will help ensure student loan borrowers with any balance, from any background, with any amount of their loan forgiven will have manageable and affordable payments on their existing loans.”


Publication Date: 4/5/2022

Bryce M | 4/5/2022 11:51:47 AM

Above comment is incorrect. It eliminates all origination fees. It doesn't need to mention PSLF, there is other federal legislation for that: the What You Can Do for Your Country Act.

Darren C | 4/5/2022 10:7:26 AM

This could be a partial solution, but it doesn't address the majority of the underlying problems with the overall cost of education and the student loan debt of 1.6 Trillion created using tax payer money. You can't just forgive a whole bunch of debt and make it disappear without having a major impact on the economy. Thousands of students and families in the past have been forced to repay their student loans, they didn't get a free pass. These band aid bills seem nice on the surface but don't propose any long term solutions to the system currently in place.

Stuart S | 4/5/2022 10:4:58 AM

No mention of PSLF and no specific mention of the exorbitant origination fees tacked onto PLUS loans.

James C | 4/5/2022 8:8:06 AM

Let's get it done!

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