Imagine, for a minute, if America’s highway system were constructed like our nation’s federal student loan repayment programs. Vacationers seeking Maine’s iconic coastline or North Carolina’s beautiful beaches would be confronted with a dozen options of indirect paths that vary wildly in time from departure-to-arrival, went in roundabout routes and were so confusing to navigate that families got lost multiple times before arriving.
Obviously – and thankfully – that’s not the case, for the Eisenhower Interstate Highway System directly and efficiently leads drivers to Portland Head Light or the Outer Banks without such nightmarish frustrations.
We think it’s time that the federal student loan repayment system looked a little more like the interstate system – simple, efficient and direct – because, right now, the opposite exists. Borrowers entering into repayment of their federal student loans face a complicated menu of up to 12 repayment options. Some of these options provide benefits only if a student chooses to opt in, meaning that the most useful program isn’t necessarily the default option for that student.
In addition, benefits available from one repayment program can overlap with others in different programs, leading to confusion about which option is best for the student. And this is all made worse by the fact that some programs with the same name carry substantially different terms and conditions.
Confused? Welcome to the club.
We think that having all of these options only increases the chance of choosing a repayment program that is suboptimal for the borrower and furthers the likelihood of missing payments or even defaulting. We also believe Congress can do better by students, which is why we’ve come together with a simple, bipartisan solution.
In late July, we released that proposal as a discussion draft to get feedback from students, parents and experts across the country who want to join us in helping to make life easier on America’s recent graduates.
• First, our proposal reduces the complex web of repayment options for prospective borrowers to simply two – a fixed repayment plan, in which borrowers make the same payment each month over 10 years, and a single, income-driven repayment plan, where a borrower’s monthly payment would be adjusted according to his income.
This dramatic simplification of repayment programs eases the ability for students to make the choice best suited to their circumstances and would allow them to switch between the two options at any time.
• Second, we address an existing loophole that allows for unlimited amounts of debt to be forgiven even for individuals who go on to high-wage jobs and don’t need this overly generous federal subsidy. Stories of hundreds of thousands of dollars being forgiven are inconsistent with the goal of the income-based repayment program, which is intended to assist needy students who borrow responsibly for college.
• Under our income-driven repayment program, a student will only need to keep one number in mind when borrowing for their college education: $57,500.
Students who take on less than that amount when entering our repayment program will be eligible to have the remaining loan balance forgiven after 20 years. Students who take on more than that amount – commonly for graduate education – will be eligible to have their remaining payments forgiven after 25 years.
In either case, students who choose the income-driven repayment plan will have their payments capped at 15 percent of their discretionary income, and taxpayers will be saved from subsidizing overborrowing and excessive levels of loan forgiveness.
• Our proposal integrates ideas from a variety of experts in the field (along with suggestions from the president) that protect the taxpayer and ensure that the programs’ benefits do not disproportionately help the wealthy or other individuals who have learned to game the current repayment system. Taxpayer exposure is dramatically decreased when these reforms are taken together – in fact, closing these loopholes is projected to save taxpayers hundreds of millions of dollars over the next decade.
• Finally, our proposal recognizes that information on repayment options is vital. In response, we direct the secretary of education to make clear to borrowers the repayment options currently available to them, the monthly payment they could expect to pay and offer to enroll them in alternate plans if they better suit a student’s needs.
Although partisan bickering about student debt can make for good theater, we believe taxpayers and students expect more from Congress. That is why we’ve put forward this bipartisan proposal that can end confusion for students and put them on the right road to dealing with loan debt.
— Special to the Press Herald