Two years ago we asked researchers, student groups, college associations, lenders and others about ways to reduce the burdens of rising student debt. The outcome was our plan for affordable payment caps on federal student loans, based on income and family size. Congress heard the call, and a new federal Income Based Repayment program (IBR) -- modeled directly on our plan -- became law last month as part of the College Cost Reduction and Access Act.
Unlike many reforms that apply only to new loans and borrowers, IBR is available to everyone with federal student loans: past, present and future. It caps required payments at less than 10 percent of income for most borrowers. It also forgives whatever debt remains after 25 years in repayment, or just 10 years for people in public service jobs.
IBR will be available to borrowers in July 2009 (although anyone in public service should consider taking these steps now). We'll be actively involved in the regulatory process, making sure the program is easy for borrowers to learn about and use. Meanwhile, borrowers and advocates can find useful information and advice in these two fact sheets:
What's Next? Private Loans.
Private student loans - increasingly used by students and parents to fill the gap between available federal aid and what they can afford - are risky, marketed aggressively, and largely unregulated by the federal government. Unlike federal loans, they have high, variable interest rates and few protections for borrowers.
College officials should be doing all they can to help students avoid hazardous private loans. And so should federal policymakers, who have the authority to protect borrowers from the most misleading and punitive practices. Our private loan policy agenda includes these recommendations:
- Allow private student loans to be discharged in bankruptcy
- Clearly label private loans as different from federal loans
- Improve reporting and data collection on private borrowing
- Make it easier to compare the terms of private loans
- Strengthen consumer protections for private loan borrowers
Private Loan Policy Agenda (updated)