Washington, D.C.—U.S. Representative Tom Petri (R-WI), a senior member of the House Education and Workforce Committee, highlighted a new report released today from a consortium of higher education advocacy and research organizations that endorses reforms to simplify the current income-based repayment (IBR) program for federal student loans and make it automatic.
Among the reforms suggested in the report are automatically enrolling students in IBR and streamlining the repayment process by utilizing the employer withholding system. The report argues that a well-designed employer withholding mechanism with an ability for a borrower to opt-out would “advance the principles of fairness and simplicity” in an automatic IBR system. The report does caution that enrolling students in the current version of the IBR program would “reduce payments and provide forgiveness to many borrowers capable of paying back their loans in full.”
Legislation introduced by Congressman Petri and Congressman Jared Polis (D-CO), H.R. 1716, the Earnings Contingent Education Loans (ExCEL) Act, accomplishes these goals by proposing an automatic income-based repayment program that uses employer withholding. The bill also eliminates the current broad-based forgiveness program and provides alternative protections for students that are fairer and more fiscally sustainable. Specifically, interest on federal student loans would accrue rather than compound and interest would be capped during repayment to protect borrowers who are struggling.
“I’ve long believed the current federal student loan repayment system is far too complicated and confusing for borrowers,” said Petri. “This report confirms what I’ve been hearing and what has been said at Education Committee hearings for some time—namely that we need to simplify the process so that fewer students default on their loans. Automatically enrolling students in income-based repayment is the best way to do that.”
The report, entitled Automatic for the Borrower: How Repayment Based on Income Can Reduce Loan Defaults and Manage Risk was commissioned by the Bill and Melinda Gates Foundation as part of the Reimagining Aid Design and Delivery (RADD) project and was written by five student-aid advocacy and research organizations: HCM Strategies, the Institute for Higher Education Policy, the National Association of Student Financial Aid Administrators, New America Foundation, and Young Invincibles.
To view the full report, click here. To read more about the ExCEL Act, click here.