A Popular Student Loan Fix Has Been Stalled for Years. It’s Time to Act.
Today marks the 25th anniversary of the first income-driven repayment (IDR) plan being made available for federal student loan borrowers. Over eight million borrowers currently benefit from IDR plans, which base monthly payments on an individual’s income and family size.[1] By keeping monthly payments more affordable, IDR is a critical safety net for struggling borrowers that reduces the risk of delinquency and default.
While IDR continues to provide a lifeline for borrowers, annual enrollment requirements are a barrier to affordable payments. To stay enrolled in an IDR plan, a borrower must annually recertify their income and family size. This bureaucratic hurdle trips up more than half of those enrolled in IDR.[2] And, nearly one-third of those borrowers who did not recertify their incomes on time had their loans go into hardship-related forbearance or deferment.[3]
It wasn’t always this way. Borrowers in some plans used to have an option to submit a simple, one-page form authorizing the IRS to provide their income information to the Department of Education for the purposes of enrolling and staying enrolled in an income-driven plan for up to five years. The federal government stopped making this form available in 2012.
The current absence of an automated and streamlined process for submitting information needed to stay enrolled in IDR creates needless administrative burdens, as well as real risks of increased cost and financial hardship for borrowers. Missing the recertification deadline causes any unpaid interest that has accrued on the loan to be added to a principal amount, on which new interest is calculated going forward. This interest capitalization increases the total cost of the loan.
Moreover, if a borrower doesn’t recertify their data on time, their required monthly payments are no longer based on income. For example, a single borrower with $30,000 in debt and an income of $35,000 would owe $141 a month in the 2014 IBR plan but would owe $345 a month — more than twice as much — if they missed the income recertification deadline.[4] The spike in monthly payment amounts can cause financial distress that increases the risk of delinquency and default.
For several years, a broad group of diverse policymakers and stakeholders — including the White House, bipartisan members of the House and Senate, student groups, consumer advocacy groups, legal-aid groups, labor unions, credit counselors, student loan trade associations, and loan servicers — have urged the Departments of Education and Treasury to restore an automatic recertification process.
This process — commonly referred to as multi-year consent — would create a secure mechanism for borrowers to give the Department of Education advance permission to automatically access their tax information for the limited purpose of determining eligibility and monthly payment amounts for all IDR plans. Importantly, borrowers would be able to revoke this permission at any time.
In January 2017, the Departments of Education and Treasury signed a widely praised memorandum of understanding regarding the re-establishment of such a process. There has, unfortunately, been no further substantive action taken to implement the MOU.
Below is a brief timeline outlining the journey — so far — of this critical fix:
June 2015: A diverse group of stakeholders — including student groups, consumer advocacy groups, schools, and loan servicers — urge the IRS to work with the ED to “quickly develop and implement” multi-year consent.
October 2015: Thirty-two bipartisan members of Congress send a letter to ED and Treasury calling for the Departments to “immediately take the steps necessary” to implement multi-year consent.
September 2016: Reps. Suzanne Bonamici (D-OR) and Ryan Costello (R-PA) introduce the SIMPLE Act, which would implement automatic recertification of borrowers’ incomes and family size while they are enrolled in income-based repayment plans.
October 2016: Twenty organizations — including student groups, consumer advocacy groups, labor unions, trade associations, and loan servicers — again urge ED and Treasury to work together to establish multi-year consent.
December 2016: A group of five bipartisan senators urge ED and Treasury to establish multi-year consent.
January 2017: ED and Treasury sign a memorandum of understanding establishing a framework for implementing multi-year consent. The MOU is widely praised, including by bipartisan members of Congress.
July 2017: House Democrats’ comprehensive proposal to reauthorize the Higher Education Act — the Aim Higher Act — includes a provision to implement multi-year consent.
July/August 2017: Sen. Ron Wyden (D-OR) joins Reps. Bonamici (D-OR) and Costello (R-PA) in re-introducing the bipartisan, bicameral SIMPLE Act.
February 2018: The President’s FY2019 Budget Request includes a proposal to implement multi-year consent.
October 2018: Sen. Jeff Merkley (D-OR) and Rep. Rosa DeLauro (D-CT) lead the introduction of the bicameral Affordable Loans for Any Student Act, which would implement multi-year consent.
November 2018: Senate HELP Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA), along with Reps. Tim Walberg (R-MI) and Suzan DelBene (D-WA), lead the introduction of the bipartisan, bicameral FAFSA Act, which would implement multi-year consent. The bill, which garners broad support from higher education stakeholders and passes the Senate, does not pass the House before the end of the 115th Congress.
March 2019: The President’s FY2020 Budget Request includes a proposal to implement multi-year consent.
July 1, 2019: Income-driven repayment turns 25, and borrowers still lack access to a streamlined process for continuing to make more affordable payments in IDR.
Multi-year consent is a common-sense, low-cost fix that would go a long way toward ensuring that borrowers in an IDR plan are able to keep making income-based payments without interruption. As we celebrate the 25th anniversary of IDR, it’s long past time to eliminate unnecessary bureaucratic barriers to affordable student loan payments, and we urge Congress to implement multi-year consent without delay.
[1] Calculations by TICAS using data from the U.S. Department of Education, Federal Student Aid Data Center, “Portfolio by Repayment Plan (DL, FFEL, ED-Held FFEL, ED-Owned),” https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/librar…. Accessed May 8, 2019. Includes borrowers with Direct Loan and ED-held FFEL loans enrolled in REPAYE, PAYE, Income-Based, and Income-Contingent plans.
[2] U.S. Department of Education, “Sample Data on IDR Recertification Rates for ED-Held Loans, https://www2.ed.gov/policy/highered/reg/hearulemaking/2015/paye2-recerti….” Shared on April 1, 2015 at the second negotiated rulemaking session. More recent Congressional statements suggest that this number may have declined, but no public data are available to confirm this. For more, see https://bit.ly/2WIfe37.
[3] U.S. Department of Education, “Sample Data on IDR Recertification Rates for ED-Held Loans,” https://www2.ed.gov/policy/highered/reg/hearulemaking/2015/paye2-recerti…. Shared on April 1, 2015 at the second negotiated rulemaking session.
[4] Calculation in: TICAS, “Make it Simple, Keep it Fair: A Proposal to Streamline and Improve Income-Driven Repayment of Federal Student Loans,” https://ticas.org/sites/default/files/pub_files/make_it_simple_keep_it_f…. Published in May 2017. See page 24 for information on calculation.
