Posts published on July 16, 2015

Give College Students A Better Deal On Loans

from ticas.org

Almost four million federal student loan borrowers are using income-driven repayment (IDR) plans, including Income-Based Repayment (IBR) and Pay As You Earn (PAYE), with more enrolling every day. These plans can help borrowers lower their monthly payments and stay on track, but there are ways they can and should be improved.

The U.S. Department of Education is seeking feedback right now on a new proposed IDR plan, called Revised Pay As You Earn (REPAYE). REPAYE is better than existing plans in some key ways:

  • It would let all federal Direct Loan borrowers cap their monthly payments at 10% of their income, regardless of when they borrowed or their debt-to-income ratio.
  • Many borrowers would have lower monthly payments and a shorter repayment period than in the plans they currently qualify for.
  • It also does more to prevent ballooning loan balances by limiting how interest accrues when borrowers have low income relative to their debt.

But REPAYE could still be better, especially by providing loan forgiveness to all enrolled borrowers after 20 years (instead of 25 years for some borrowers as proposed).