A Belated Federal Update, or, What I Should Have Been Writing About… But Didn’t

Ouch! Has it really been 6 months since I last wrote a blog post. Well just because I was inactive doesn’t mean that the great student loan debate didn’t rage on. Congress and the administration seemed to be in a particular frenzy these past few months in trying to come up with solutions to the “student loan crisis”. Much of the fury has been the result of the pending reauthorization of the Higher Education Affordability Act (up for renewal in 2014) and some of the proposal may really just be “marker bills” with more of an intention to “promote” the idea than to actually see any immediate action taken on it. So although nothing has been approved or adopted (yet) and some have already died… here is a sampling of some of the scenarios that are at least making the rounds on the Hill which could (significantly) impact your loan repayment future:

• ExCEL Act (Earnings Contingent Education Loans Act) – originally proposed by Rep. Petri (R-WI) in the 112th and 113th Congress (and co-sponsored by Rep. Polis (D-CO)) – this bill creates a single student loan program (no more Unsub vs Grad Plus vs. Perkins) that is repaid on an income contingent basis (15% of income above 150% poverty) and would use employer withholdings to make payments. In addition interest would stop accruing on the loan when the total amount of interest accrued (paid and unpaid) equals 50% of the loan’s balance when it entered repayment.

• Dynamic Student Loan Repayment Act – introduced by Senator Rubio (R-FL) and Senator Warner (D-VA) would replace current loans, subsidies, deferments, forbearances, and repayment options with a single loan called the Income Dependent Education Assistance (IDEA) Loan, and would be repaid through income-based repayment and employer withholding.

• Financial Aid Simplication and Transparency (FAST ) Act – proposed by Senator Alexander (R-TN) and Senator Bennet (D-CO) – streamlines student loan repayments into two options- 10 year repayment or income-based repayment (eliminating the present Graduate Repayment and Extended (25 year) repayment options ). Also established a one loan (for undergrad and graduates) program.

• Investing In Student Success Act – introduced by Rep. Petri (R-WI) and Sen Rubio (R-FL) establishes a regulatory framework for income share agreements. (What do income share agreements have to do with student loans you ask? It applies to those cases when individuals/organizations provide students with funds for their education in exchange for the student agreeing to make payments linked to their income after graduation) .

• Bank on Students Emergency Loan Refinancing Act – by Senator Warren (D-MA) would allow more than 25 million people to refinance their student loans to today’s lower interest rates of less than 4 percent.

The other hot Beltway topic continues to be the future of Public Service Loan Forgiveness (PSLF). The President’s 2015 Budget Proposal called for capping the (currently uncapped) total amount of loan forgiveness under PSLF to $57,500. (Why $57,500? Because that’s the current aggregrate, undergraduate loan limit. ). The proposal would also limit qualifying payments for PSLF to only income drive repayment plans . More significantly it would calculate married borrower payments for income drive repayment (and therefore PSLF eligbility) on combined household Adjusted Gross Income. This would close a gap in the current regulation which allows a borrower if married to complete their taxes as “married filing separately” using only their AGI to calculate the income drive loan repayment amount. (A huge benefit if the borrower is working for relatively low income (i.e. public service) while the spouse may be making a significantly higher income). The Republicans countered with the GOP Tax Reform Act of 2014 under which the loan debt forgiven in year ten of Public Service Loan Forgiveness would now become a “taxable event”- i.e. you would need to declare the monetrary“value” of the amount forgiven as income on your tax return (and be taxed on income that technically you never received but had “in theory”). Keep in mind as well that we have yet to see the first group of borrowers step forward for their actual forgiveness (that won’t happen until 2017.

Want another example of how really far the politicizing of student loan debt has gone… Check out this recent ad from the College Republican National Committee parodying one of my favorite television shows- “Shark Tank” (Posted here only as example of the level to which this issue is now political fodder not for any political affiliation or endorsement ) But it does get you thinking .. with seemingly every one in Washington throwing out ideas on how to solve the student loan crisis… maybe it is time to turn to the “Sharks” to get this done.