Student Loan Reform Primer Published: August 12, 2015 National Journal Presentation Credits Producer: Alex Perry Director: Afzal Bari
Obama Administration Has Pushed to Ease Burden of Student Loans Recent Legislative and Executive Action on Federal Student Loan Policy Health Care and Education Reconciliation Act of 2010 Increased investment in the Pell Grant Program by more than $40 billion New borrowers who assume loans after July 1, 2014, were be able to cap their student loan repayments at 10 percent of their discretionary income For borrowers who keep up their payments over time, any remaining debt will be forgiven after 20 years, or 10 years for those in public service jobs Pay as You Earn (PAYE) Program Effective December 2012, PAYE is a student loan repayment program that caps monthly payments for Federal Direct Student Loans at 10% of discretionary income In order to be eligible for PAYE, borrowers must have taken out their first loan after September 30, 2007 and must have still been borrowing after September 2011 Executive Order, June 2014 President Obama signed an executive order to extend the PAYE program to student loans incurred before October 2007 REPAYE Expansion Proposal In July 2015, the Obama administration submitted a proposal for a Revised PAYE (REPAYE) repayment plan, which would be available to anyone with an existing federal loan, regardless of income Analysis To fund the Health Care and Educational Reconciliation Act of 2010, the federal government ceased giving subsidies to private lending institutions for federally backed loans The PAYE program was implemented to complement additional Income-Driven Repayment (IDR) plans, including Income-Based Repayment (IBR), which caps monthly loan payments at 15% of a borrower s discretionary income In 2015, President Obama submitted a proposal for tuition-free community college and the Department of Education forgave federal student loans for thousands of students who attended Corinthian Colleges, a for-profit college company that closed and filed for bankruptcy in May 2015. Source: WhiteHouse.gov, President Obama Signs Historic Health Care and Education Legislation, FACTSHEET: Making Student Loans More Affordable ; Ed.gov, Education Department Launches Pay As You Earn Student Loan Repayment Plan ; Washington Post, Obama unveils plan to protect student loan borrowers ; The Washington Post, The Obama Administration s plan to lower the student debt payments of millions more Americans ; The Atlantic, When Loan Forgiveness Isn t Enough ; Federal Register, Student Assistance General Provisions, 7-9-15 2
Income-Driven Repayment Programs are Designed to Prevent Borrowers from Defaulting on their Loans Summary of Existing Income-Driven Repayment (IDR) Options in the US Availability Eligibility Monthly Payment Cap Time Frame Income-Based Repayment (Classic IBR) (Since 2009) All borrowers with federal student loans (Direct or Federal Family Education Loan), new or old, with a partial financial hardship (PFH) 15% of discretionary Income 25 years Income-Based Repayment (2014 IBR) (Since July 1, 2014) Borrowers who take out their first loan on or after July 1, 2015, and have a PFH 10% of discretionary income 20 years Pay As You Earn (PAYE) (Since 2012) Direct loan borrowers who took out their first loan after September 30, 2007 and at least one after September 30, 2011, and have a PFH 10% of discretionary income 20 years Income-Contingent Repayment (ICR) (Since 1994) Borrowers with Direct Loans, new or old; no PFH requirement The lesser of 20% of discretionary income and 12-yr repayment amount x income percentage factor 25 years These payment plans are only available for federal student loans that are not in default. Borrowers have a PFH if their payment based on income and family size is less than what they would pay under the 10-year standard repayment plan For Classic IBR, 2014 IBR, and PAYE, discretionary income is defined as the amount of adjusted gross income (AGI) above 150% of the poverty level for the borrower s household size. For ICR, discretionary income is defined as the amount of AGI above 100% of the poverty level for the borrower s household size. Source: studentloans.gov, Income-Driven Repayment Plans for Federal Student Loans ; ibrinfo.org, Summary of Existing IDR Options in the US ; The Washington Post, The Obama Administration s plan to lower the student debt payments of millions more Americans 3
Proposed Changes to Student Assistance Regulations Creates a Revised PAYE Repayment Plan Summary of Revised PAYE (REPAYE) Proposal Eligibility Current Regulation: Eligible only if borrower has a Partial Financial Hardship (PFH) Married Borrowers Current Regulation: For a married borrower filing separately, Adjusted Gross Income (AGI) includes only the borrower's income Repayment Period Current Regulation: a borrower may qualify for forgiveness of any remaining loan balance after 20 years of qualifying monthly payments Payment Cap Current Regulation: The maximum monthly payment amount may not exceed what would have been paid under the standard repayment plan based on a 10- year repayment period Interest Capitalization Current Regulation: accrued interest is capitalized when the borrower is determined to no longer have a PFH Available to all Direct Loan student borrowers, regardless of income and when the borrower received the loan Eliminates Partial Financial Hardship (PFH) as a criterion for eligibility Married persons on REPAYE will have their spouse s income count towards their monthly payment, regardless of whether or not they file their taxes jointly or separately For a borrower with loans for only undergraduate education, the loan s balance will be forgiven after 20 years of qualifying payments For a borrower with at least one loan for graduate study, the loan s balance will be forgiven after 25 years of qualifying payments The calculated monthly payment amount would not be capped at the amount the borrower would have paid under a standard repayment plan based on a 10-year repayment period If the borrower s monthly payment under REPAYE is less than the monthly interest, the excess interest will be reduced by 50% Source: Federal Register, Student Assistance General Provisions, 7-9-15 4
Student Loan Proposals Include Tuition-Free Education, Changes to Repayment Methods, and Private Investment Proposals from the Most Outspoken Presidential Candidates on Student Loan Policy August 2015 Candidate Hillary Clinton Highlights of Student Loan Proposals Introduced the New College Compact, a 10-year, estimated $350 billion proposal to help students pay for college and reduce interest rates for people with student loans Aims to allow students to attend a four-year public college without taking out loans, or to attend community college tuitionfree, by increasing state spending on higher education, encouraging institutions to cut costs while boosting graduation rates, and creating incentives for innovation Martin O Malley Advocates debt-free public college and universities Proposes temporarily freezing tuition rates, increasing Pell Grants, revamping federal work-study programs and implementing other measures that would help students carrying debt Marco Rubio Supports income-based repayment and allowing private investors to partner with students to cover the cost of tuition in exchange for a portion of their income Introduced a bipartisan bill with Sen. Mark Warner (D-VA) in 2014 to simplify federal student loan repayment by placing borrowers into a plan that automatically deducts 10 percent of their earnings every month (The plan did not gain traction in Congress) Bernie Sanders Proposed a federal program to make four-year public colleges and universities tuition-free This plan, estimated to cost $70 billion per year, would be funded by a tax on Wall Street transactions by investment houses, hedge funds and other financial speculators Source: Politico, Hillary Clinton s $350 billion plan to kill college debt ; Washington Post, How O Malley wants to lighten the load of college debt ; Washington Post, How student debt became a presidential campaign issue ; MarketWatch, Where each of the 2016 candidates stand on the student-loan crisis 5