Simplify and Improve Income-Driven Repayment (IDR)
There are five similar IDR plans, causing unnecessary complexity and confusion. To simplify and improve student loan repayment as well as reduce delinquency and default, we recommend streamlining these five plans into a single, improved plan that works better for both students and taxpayers. This single IDR plan, paired with the option of a fixed payment plan, would let any borrower choose the assurance of payments capped at 10 percent of income and provide tax-free forgiveness of remaining debt, if any, after 20 years of payments. The plan would also better target benefits to those who need them most and prevent borrowers with high incomes and high debt from receiving loan forgiveness when they could have afforded to pay more. We strongly support legislation introduced in the Senate (S. 1002) in 2019 that reflects these recommendations.
Make it Easier for Borrowers to Keep Making Payments Based on Income
Rather than having to proactively submit new income information every year, borrowers should be able to give permission for the Department of Education to automatically access their required tax information. This change will help borrowers maintain more affordable payments and stay on top of their loans, as well as shrink paperwork and burden for both borrowers and loan servicers. The Departments of Treasury and Education reached an agreement to do this, but progress has stalled despite strong bipartisan support for the change in the White House, the House, and the Senate, including bipartisan legislation that would require it. We strongly support bipartisan legislation (H.R. 3883) introduced in 2019 that would automatically enroll severely delinquent borrowers in an income-driven plan to help prevent defaults, and automate the annual income recertification process required for borrowers to continue making income-driven payments. Bipartisan, bicameral legislation (S. 3611, H.R. 7386) introduced in 2018 would also automate the income recertification process.
Improve Student Loan Servicing
Improving the federal student loan servicing system will significantly improve borrowers’ repayment experiences and outcomes. As the Department continues developing its new servicing platform (NextGen), the Department must ensure that the new system is transparent to borrowers, that contractors’ incentives are aligned with borrower success, and that contractors are subject to strong oversight. As has been jointly recommended by the Consumer Financial Protection Bureau (CFPB) and the Departments of Education and Treasury — and separately recommended by the Government Accountability Office — a federal servicing system must prioritize borrowers’ interests and ensure all borrowers have easy access to high-quality information and excellent customer service. We also support the restoration of a data-sharing partnership between the Education Department and the CFPB to facilitate appropriate oversight of the federal loan program.
Restore Bankruptcy Protections for Student Loan Borrowers
Bankruptcy provides a crucial protection for Americans facing severe financial hardship. The bankruptcy reform legislation passed in 2005 sets a high bar for granting relief, which helps ensure that consumers who receive relief are truly unable to pay. Yet federal bankruptcy law treats private education loans and federal student loans even more stringently than other forms of consumer debt, excluding both from discharge except in exceedingly rare cases of proven “undue hardship.” To remove barriers to relief for borrowers who are truly unable to repay, we support bipartisan legislation (H.R. 770, S. 1414 and H.R. 2648) to restore borrowers’ ability to discharge student debt through bankruptcy.