Today, U.S. Senators Angus King (I-Maine) and Richard Burr (R-N.C.) are sharing with the public a discussion draft that would reform federal student loan repayment programs. Graduates today face a maze of federal student loan repayment programs from which to choose that often leave students confused about which programs best fits their needs. Furthermore, through years of ad hoc changes and expansions outside of Congressional authorization, little has been done to ensure taxpayers are likewise best served. The King/Burr Discussion Draft addresses these issues by consolidating many of the benefits of current repayment programs into a single simplified income-based repayment option.
This bipartisan plan proposes to make loan repayment more affordable for the middle class by eliminating duplicative repayment options, streamlining eligibility terms, and ensuring that borrowers will never direct more than 15 percent of their discretionary income to their loan payments. The proposal also ends the disproportionate federal subsidization of loan payments for high income borrowers and sets parameters for the amount of debt that can be forgiven over certain periods of time. These are commonsense changes supported by broad groups of stakeholders who want to see these programs become sustainable and user-friendly.
"Student borrowers already have more than enough to worry about after they graduate without having to wrap their heads around the confusing maze of federal loan repayment options," Senator King said. "That's why Senator Burr and I are offering this discussion draft as a concrete first step towards simplifying these programs. Students ought to be able to easily navigate their options, make a choice that best serves their needs, and keep money in their pockets. I look forward to hearing feedback from students, parents, my colleagues, and experts across the country as we look at ways to improve college affordability in America."
"Senator King and I are introducing this discussion draft instead of legislation so we can receive feedback from the public -- student borrowers, our Congressional colleagues, experts in the field, or anyone else who can bring to the table thoughtful discussion on how to best help our students," said Senator Burr. "I understand how daunting it can be to finish school and face the uncertainty of unemployment, on top of the anxiety of how to repay student loans. It is my hope that we will receive robust feedback in the coming months to better this draft and inform Congress as we begin Higher Education Act reauthorization efforts."
Section 1 -- Bill Title
Section 2 -- Creates a new Simplified Income-Driven Repayment plan that--
Streamlines loan term and forgiveness schedule:
For borrowers with loan balances of up to $57,500 prior to repayment, 20 years of repayment before loan forgiveness;
For borrowers with loan balances over $57,500 prior to repayment, 25 years of repayment prior to loan forgiveness.
Creates a simple monthly calculation rate that ensures borrowers never pay more than 15% of their monthly discretionary income through the life of repayment; and
Calculates loan payments for households based upon household income.
Section 3 -- Provides for a new set of simplified repayment options, as created by the King/Burr draft, that take effect July 1, 2015. This provision requires the Secretary of Education to make clear to graduates they have the option of a standard repayment option that fully amortizes their loan balances (as provided under current law) or a Simplified Income-Driven Repayment option that caps payments at a percentage of their income and provides the option of loan balance forgiveness after 20 or 25 years (10 years if eligible for Public Service Loan Forgiveness).
Section 4 -- Tax Provisions
Under section 464 of the Higher Education Act, individuals exhibiting total and permanent disabilities, defined as likely leading to death and/or complete unemployment, are eligible for student loan forgiveness. With that, however, comes the expectation of tax liability for the amount forgiven, leading to large tax bills for these disadvantaged individuals. The King/Burr draft would provide complete tax forgiveness for individuals exercising the Total Permanent Disability (TPD) discharge of their student loans.
Section 5 -- Instructs the Secretary of Education to direct federal student loan servicers to notify borrowers about the repayment plans available to them, outline the financial impact of switching to alternative repayment plans, and offer to enroll individuals in such plans, if eligible.