Senators Angus King (I-ME) and Richard Burr (R-NC) reintroduced the highly-anticipated REPAY Act today. The bill, which was originally introduced in 2017 when student debt had yet to become the polemic issue that it is today, streamlines the wildly complex federal student loan repayment system that is likely contributing to the growing upset over the issue of student loan affordability. The REPAY Act would eliminate the menu of repayment options that student borrowers currently face and replace it with two alternatives: 1) an income-driven repayment plan that collects monthly payments set to an affordable level based on current earnings, and 2) a standard repayment plan that has fixed monthly payments (like a typical mortgage or car loan). If passed, this would be a huge step towards making the current overly complex system more understandable to navigate, thus ensuring borrowers who need help with repayment will know how to find it.
Over the last two and a
half decades, the federal government has been incrementally building a borrower
safety net to ensure that no student will be saddled with debt if their
education doesn’t pay off. In 1994, the Income Contingent Repayment Plan first
allowed some borrowers of federal student loans to make monthly payments that
were determined as a percentage (20 percent) of their disposable income, rather
than on a fixed amortization schedule. Borrowers who would pay their debt in
this way would have any remaining balance forgiven at the end of 25 years.
Since then, a combination of executive and legislative actions have expanded
the repayment options for federal student loan borrowers and made them more
generous at the same time. Thus, we have, in theory, a universal safety net
that ensures forgiveness from unaffordable student debt for every borrower — past,
present, and future. The system, however, is a confusing tangle of overlapping
The REPAY Act would
change that by making it simpler for new borrowers to utilize the benefit of an
income-driven repayment plan. Most expect that replacing the current set of
options with a single plan (of similar generosity) will make it easier for
borrowers to understand their options and to make decisions regarding repayment
that are best for their personal financial circumstances. A second advantage of
this new simplicity would be that aspiring students, ones who haven’t yet
stepped foot on a college campus yet, can more easily understand the benefits that
would be available to them if they chose to borrow to pay for college. This
will likely help more low-income students rightly believe that college is an
affordable option for them.
Indeed, the REPAY Act
would take an important step forward in streamlining repayment plans and making
them more understandable for federal student loan borrowers. However, there are
further measures that could benefit borrowers even more. Those include 1) making
income-driven repayment the default option for borrowers entering repayment,
and 2) allowing payments on loans to be made by withholding a certain
percentage of income from each paycheck before it gets deposited. These two
actions would make repayment even easier for new borrowers. However, if we must
approach the challenge of streamlining student loan repayment through
incremental reform, then this is the right first step.
We’re in a political moment when the discourse on higher education is saturated with dramatic ideas like widespread loan cancellation and free college. Given that, this nuanced fix might not get the attention it deserves, but policymakers who are serious about helping students shouldn’t minimize the importance of bipartisan reforms like this one.