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Higher Education Advocates Propose Student Loan Repayment Plan

Federal student loan borrowers would pay their loans based on their income upon leaving school, and the plan would act as a form of insurance against tough economic times.

As defaults and delinquencies among federal student loan borrowers are increasing, a consortium of higher education advocacy and research organizations is calling on Congress to reform the overly complex loan repayment process.

Today, roughly two-thirds of graduating college seniors leave college with debt. In 2011, one in 10 borrowers defaulted in the first two years after entering repayment for their loans, according to a report from the consortium. That rate is nearly double what it had been five years earlier.

The consortium, which includes HCM Strategists, Institute for Higher Education Policy, National Association of Student Financial Aid Administrators, New America and Young Invincibles, proposes that all new federal student loan borrowers should be enrolled in a single repayment plan based on their income.

The consortium believes it can fix the student loan repayment process and reduce the risk of unaffordable loan payments and default.

The plan, called “auto-IBR,” would:

  • Automatically enroll all federal student loan borrowers in a repayment plan based on income upon leaving school.
  • Automatically deduct student loan payments through employer withholding. 
  • Implement institutional accountability measures based on borrowers’ ability to repay their debt.

The auto-IBR would act as a form of insurance against tough economic times for federal student loan borrowers, particularly those who experience unexpectedly low incomes at any point during repayment.

The report highlights the mechanics of the repayment formula, administrative changes required to implement employer withholding for student loans and options for ensuring institutional accountability under an auto-IBR system.

“Far too many students needlessly slip into student loan default despite the numerous safeguards like income-based repayment that would keep their loans current,” said NASFAA President Justin Draeger. “Moving to a system of auto-IBR as proposed in this paper would prevent borrowers who are already facing monumental challenges from the added dire consequences of loan default.”

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