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The Growing Consensus on Fixing Student Loans

Senator Marco Rubio (R-Fla.) and Senator Mark Warner (D-Va.)in Washington

Photograph by Manuel Balce Ceneta/AP Photo

Senator Marco Rubio (R-Fla.) and Senator Mark Warner (D-Va.)in Washington

Senators Marco Rubio (R-Fla.) and Mark Warner (D-Va.) have a new proposal to change the way students repay their loans. It piggybacks on a host of ideas put forth recently that, though they come from different places and political parties, are remarkably similar.

The proposals include one from a group of student advocates and financial aid administrators; several years of ideas from the New America Foundation; a House bill offered in April by Representatives Tom Petri (R-Wis.) and Jared Polis (D-Colo.), which incorporates ideas Petri has been pursuing for three decades; another Senate bill from Lamar Alexander (R-Tenn.) and Michael Bennet (D-Colo.); and changes President Obama put into his 2015 budget. They all come as the Congress grapples with the reauthorization of the Higher Education Act.

Here’s a rundown of the key features that, in various combinations, keep coming up on both sides of the aisle.

Automatically enrolling students in an income-based repayment plan. Traditionally, borrowers repay loans with a fixed monthly payment over 10 years. To help those who struggle, the government has a host of programs, several of which focus on reducing a payments to a percentage of income. Signups for those programs have lagged, in part because the programs are complicated. Several proposals say borrowers should be automatically enrolled in an income-based plan from the get-go.

Simplifying repayment options. There are seven different repayment plans, including four that tie monthly payments to income. Each has unique features and eligibility requirements, but they share confusingly similar names. The proposals suggest greatly cutting back on the number of options; some say there should be a single repayment plan, tied to income.

Auto-deducting monthly payments. To reduce missed payments, several suggest automatically withholding loan payments from a borrower’s paycheck, similar to how taxes and social security are taken out.

Revamping loan forgiveness. Current income-based repayment plans forgive remaining debt after 10 to 20 years. That ends up being a windfall for some borrowers, such as grad students who take on huge debts but have modest incomes. The proposals take different approaches to make forgiveness more equitable. The Rubio-Warner bill, for example, forgives up to $57,500 after 20 years, with any remaining balance forgiven after 30 years.

While there’s a growing consensus on how to improve repayment, the other side of the equation gets a lot less attention. Almost no one wants to tackle how much students are borrowing in the first place.


Weise is a reporter for Bloomberg Businessweek in Seattle. Follow her on Twitter @kyweise.

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