Reps. Jared Polis (D-CO) and Richard Hanna (R-NY) on October 9 reintroduced the Earnings Contingent Education Loans (ExCEL) Act. The ExCEL Act would discontinue subsidized Direct Loans and phase out unsubsidized and PLUS loans for student borrowers in favor of a new loan program, Income Dependent Education Assistance (IDEA) loans. IDEA loans would have similar terms and conditions as unsubsidized Direct loans have, except that repayment would be income-based and deducted from the borrower’s paycheck. Parents would continue to borrow under the Direct PLUS Program.
Loan limits would essentially be the same as in the current Direct Loan program. However, the interest rate would be fixed, determined in the year the loan was made. While interest during the in-school or deferment periods would not be subsidized for any students, the total interest that can accrue over the life of the loan would be capped. Further, only Interest that accrues during the in-school period could be capitalized; interest that accrues during the repayment period (up to the cap) would never be capitalized. These provisions would protect the borrower from negative amortization.
IDEA loans would not be eligible for public service loan forgiveness (PSLF), and there would be no automatic loan discharge after a defined period of repayment. Other current loan forgiveness provisions would apply.
The ExCEL Act would direct the Department of the Treasury to transmit certain income data to the Department of Education for purposes of calculating a repayment amount. Employers would withhold the repayment amount from a borrower’s wages unless the borrower opts out of that repayment method, electing to make monthly payments him- or herself. Borrowers who want to repay the loan more quickly could prepay at any time without penalty.
Additional details about the ExCEL act are the same as when it was introduced in 2013 by Polis and former Rep. Tom Petri (R-WI). Petri originally introduced the concept in 2012. NASFAA supports the concept of automatic income-based repayment; although there are some details, such as loss of PSLF, that bear further examination, this bill keeps the discussions about auto-IBR and loan simplification moving forward into the reauthorization framework.
Publication Date: 10/15/2015