Senate Bill Would Create New Simplified Income-Driven Repayment Plan Option

By Joan Berkes, Policy & Federal Relations Staff 

The Repay Act of 2015, introduced by Senators Angus King (I-ME) and Richard Burr (R-NC), would streamline Direct Loan repayment plan options for student borrowers. Effective July 1, 2015, new student borrowers (those with no previous Direct or FFELP loans or no outstanding balance on a loan made prior to July 1, 2015) would choose between two repayment plans: a fixed 10-year plan (renamed and otherwise unchanged from the current “standard” plan) or a simplified income-driven repayment (SIDR) plan. Plans available to parent PLUS borrowers and student borrowers who don’t qualify as new borrowers would remain unchanged.

The new SIDR plan would annually determine the repayment amount based on discretionary income, defined as the difference between the borrower’s AGI (including spousal income) and 150 percent of the poverty line for the borrower’s family size. The annual repayment amount would be 10 percent of the portion of discretionary income that is less than $25,000, plus 15 percent of any remaining discretionary income. The “bend point” of $25,000 would be adjusted annually for inflation based on the Consumer Price Index. For married individuals, both of whom are repaying student loans under SIDR, the repayment amount would be calculated individually using each spouse’s loan amount and half of their combined income. The monthly payment on all covered loans (i.e., all non-defaulted Direct loans other than parent PLUS loans or Consolidation loans used to repay a parent PLUS loan) would then be 1/12 of the annual amount.

If the monthly repayment amount is less than the interest due on the borrower’s loans, the excess interest would be paid by the federal government on subsidized Direct Loans for up to 3 years, exclusive of periods of deferment due to economic hardship. For unsubsidized loans, and for subsidized loans after the 3-year repayment subsidy is exhausted, interest would be capitalized if the SIDR repayment amount exceeds the amount that the borrower would have been paying under the 10-year fixed repayment plan had he or she not elected SIDR.

Any principal due in excess of that covered by the SIDR payment amount (after applying the payment to interest and fees) is deferred.

Outstanding principal and interest would be cancelled:

  • After 20 years of SIDR payments or economic hardship deferment if the original principal balance of the loans did not exceed the maximum amount allowable for independent undergrads (but at least $57,500, which is the current highest undergrad limit); or
  • After 25 years of SIDR payments or economic hardship deferment if the original principal balance loans did exceed that limit.

Public service loan forgiveness would be available after 10 years of repayments under SIDR.

If a borrower failed to provide required annual documentation, payments made during the period of that failure would not count towards either form of loan forgiveness.

A borrower repaying under SIDR could change at any time to the fixed repayment plan, in which case the payment amount would be the amount calculated had the borrower not elected SIDR, but the repayment period could exceed 10 years.

The bill would also amend the tax code so amounts discharged due to public service or death and disability would not be taxed.

Under the bill, the Government Accountability Office (GAO) would be required to conduct a study two years after enactment to examine simplification of enrollment in, verification of eligibility for, and efficient administration of SIDR.


Publication Date: 1/9/2015

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