Policy Solutions for Student Loan Borrowers in Crisis: 7 Recommendations for Repayment

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

In response to the ongoing issues stemming from the financial hardships imposed by the complicated nature of the current student loan system, NASFAA has developed comprehensive recommendations aimed at providing policy makers with targeted and tangible solutions to address the long documented, underlying flaws in the current repayment model.

In a white paper released last week aimed at addressing the underlying flaws in the student loan system, NASFAA put forward seven recommendations for improvements that can be made to the current student loan repayment system.

“While federal student loan programs continue to be an integral piece for access to and funding for higher education for many students, policymakers should work to reduce reliance on federal student loans through increasing front-end investments in other aid programs, especially those that serve students from traditionally under-resourced communities,” NASFAA writes.

As part of this work, NASFAA formed a coalition with associations, organizations, and think tanks from the higher education policy, advocacy, and research community to help develop these recommendations.

The section of the paper delving into student loan repayment focuses on simplifying the repayment process by consolidating the current programs into three payment options, reforming interest rates to better align the federal student loan program with the purpose of expanding postsecondary access, in tandem with additional reforms.

Within this framework, NASFAA put forth several recommendations:

  • Consolidate the existing repayment plans into three options: a single income-driven repayment plan, a standard 10-year repayment plan, and an extended 25-year plan. Transition all borrowers into one of these three plans and sunset all other existing repayment plans.

  • Design a single income-driven repayment plan

  • Explore ways to reform the use of interest in the federal student loan programs to better align with their purpose of expanding postsecondary access.

  • Eliminate student loan origination fees.

  • Maintain a single loan program for graduate/professional students with loan limits that allow

  • students to borrow up to the in-state cost of attendance at public institutions. Allow additional borrowing based on earnings data for the student’s program of study or a debt-to-income ratio.

  • Reform the parent Direct PLUS program ​​by using a debt-to-income ratio to meaningfully assess how much a parent can responsibly borrow, and provide forgiveness of loan debt for parent borrowers who received PLUS when their incomes were at or near the poverty level.

  • Reform the Public Service Loan Forgiveness Program.

This section of the issue paper also provides a detailed look at the emergence of the current repayment system since the inception of the student loan program, and walks policy makers through how continual piecemeal modifications have accumulated to create a complicated and ineffective system.

Along with these recommendations NASFAA also encourages policy makers to expand and bolster funding for programs like the Federal Pell Grant, and boost support for other college completion and retention efforts in order to make higher education more accessible and equitable.

“Over the past year, NASFAA and the coalition have worked to develop thoughtful, systemic, and targeted policy solutions to address some of the flaws in the current student loan system. We have accomplished work of extensive breadth and depth to address the shortcomings of the current student loan repayment and servicing systems that lead borrowers into financial hardship,” NASFAA writes in the issue paper’s conclusion. “While there is still more work to be done, we hope the 31 recommendations put forth in this report advance the conversation on our current student loan system and assist those involved with strengthening the system going forward.”

Read the full paper, as well as coverage of NASFAA’s recommendations on student loan servicing and loan default.


Publication Date: 5/25/2022

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