Today, U.S. Representative Tom Petri (R-WI) spoke at an event hosted by the American Council on Education (ACE) about reforming the federal student loan repayment system by making a simplified and improved version of income-based repayment (IBR) the standard for borrowers.
"There are many factors that contribute to the complexity of the 'patchwork' system we have now," said Petri. "But the fact is, because of that complexity too many students are defaulting on manageable levels of debt, and income-based repayment is a proven method to ensure borrowers can meet their obligations in a way that is responsive to their circumstances."
The event, entitled, "A New Design: Improving Student Loans," brought together experts from the U.S. and around the world to discuss ways that IBR can be used to reform student loans. Economists Dr. Bruce Chapman from the Australian National University and Dr. Nicholas Barr, from the London School of Economics spoke about the benefits of these types of reforms in their countries.
The United Kingdom implemented universal income-based repayment in 1998, and now 98 percent of borrowers meet their obligations. In the United States, 13.4 percent of borrowers default on their student loans within three years.
"Income-based repayment has been tested for over a decade in three major economies and it's been proven to work," said Petri.
Rep. Petri also remarked on the complexity of the current system saying that "it's been difficult for me and my staff to fully understand how all our programs and options operate and work together. So it isn't realistic to expect students to take advantage of all the benefits that may be available to them. We need something more efficient and simplified so that college doesn't result in financial ruin once you graduate."
Rep. Petri's bill--the ExCEL Act--was introduced in the 112th Congress, and is set to be reintroduced in the coming weeks. The legislation would simplify federal student loans by basing repayment on the income a borrower earns and improve on the current income-based repayment (IBR) option by utilizing the employer withholding process to make payments responsive to a borrower's economic circumstances.