Progress and Bipartisan Agreement on Helping Keep Student Loan Payments Affordable

Borrowers are now one step closer to having a more streamlined process to keep their federal student loan payments affordable. Currently, borrowers struggling with payments can enter repayment plans that base monthly payments on their income, but they are required to update their income information every year. More than half of borrowers miss the annual deadline and the consequences can be severe – unaffordable spikes in monthly payment amounts that increase their risk of delinquency and default, as well as interest capitalization that can add substantial costs.

For example, a single borrower with $25,000 in debt (6.8% interest rate) and $25,000 in adjusted gross income (AGI) would owe $60 a month under the Pay As You Earn (PAYE) plan, but would owe $288 a month – over four times more -- if he or she missed the income recertification deadline.

TICAS, along with bipartisan groups of lawmakers in both the House and the Senate, other advocates for students and consumers, higher education leaders, financial aid administrators, and loan servicers have all advocated to reduce the likelihood that borrowers end up in delinquency or default by automating the annual recertification process (what is commonly known as “multi-year consent”). In response, the U.S. Departments of Treasury and Education recently announced an agreement to allow borrowers to provide permission for their annual income to be updated automatically using their existing tax data. Borrowers will be able to revoke that permission at any time. The move received bipartisan praise.

Automating the annual recertification process is a common-sense improvement that will help borrowers stay on top of their student loan payments. This change will also reduce the paperwork burden on student loan servicers. Now, it is incumbent on the agencies to work together to promptly implement the agreement to make multiyear consent a reality for borrowers and servicers, and for Congress to ensure that they have sufficient funding to do so.

Soon to be reintroduced in the new Congress by Representatives Bonamici (D-OR) and Costello (R-PA), the bipartisan SIMPLE Act also takes aim at the cumbersome annual recertification process for borrowers enrolled in income-driven repayment plans. In addition to requiring that borrowers can have their income automatically updated each year, the bill would dramatically reduce defaults by automatically enrolling severely delinquent borrowers who have not made a payment in four months into an income-driven plan. With a record eight million federal student loan borrowers in default, and one in four borrowers either delinquent or in default, these common-sense measures are urgently needed.

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