One proposal streamlines income-based repayment programs, and the other would allow employers to recruit and retain talented workers by helping to pay-down an employee’s student loan debts with pre-tax income. More than half of Virginia’s college students will graduate with some student debt, and the average student loan debt in Virginia tops $26,000 per graduate. Nationwide, Americans now owe more than $1.3 trillion in student loans, outstripping credit cards and auto loans as the country’s leading source of non-housing debt.
“I was the first person in my family to graduate from college, and I wouldn’t have been able to do that without the help of student loans. But as tuition and college costs have continued to rise, more and more students are graduating with crippling levels of debt, limiting their options just as they are starting out in their careers. The burdens of student debt have a ripple effect on our entire economy. It prevents young people from taking a risk, launching a new business, or committing to a period of pro bono or public service,” said Sen. Warner.“And it causes struggling graduates to delay choices such as buying a home and starting a family. We have to do more to rein in the exploding cost of a college degree. In the meantime, these are commonsense, bipartisan steps we can take to provide some real relief now to students struggling today with massive amounts of student debt.”
The Dynamic Student Loan Repayment Act will make it easier for students to enroll in federal income-based loan repayment programs that allow borrowers to pay down college debt based on their income, making debt more manageable for recent grads just starting out in the workforce. Current federal student loan programs include numerous protections for borrowers to avoid default, but most students don’t utilize them because the process and paperwork required to enroll is confusing and burdensome. As a result, almost 15 percent of borrowers will default on their student debt within three years, at great expense to the government and posing financial ruin for the borrower.
The Dynamic Student Loan Repayment Act, which was introduced with by bipartisan support from Sen. Marco Rubio (R-FL), will replace the complicated array of loans, subsidies, deferments, forbearances, and repayment options with a single, streamlined, user-friendly repayment plan that allows a borrower to pay an affordable percentage of his or her income until the loan is repaid. To read the bill, click here.
Under the proposal, student debt payments would be capped at 10 percent of a borrower’s income over a minimum threshold of $10,000. For example, a borrower making an annual salary of $40,000 would pay 10 percent of $30,000 – or $3,000/year. If after 20 years, a balance still remains on a loan of $57,500 or less, the remaining debt will be forgiven entirely. Borrowers with more than $57,500 in loans will be forgiven after 30 years of repayments.
Similarly, the Employer Participation in Repayment Act would also update an existing federal program so that it works better for employers and employees living with the reality of rising college costs. Currently, the Employer Education Assistance Program allows employers to contribute pre-tax earnings to help employees finance continued education, but does not allow relief for individuals who already have incurred student loan debt in the course of their undergraduate or graduate careers. The Employer Participation in Repayment Act would help those with student loan debt by allowing employers to contribute up to $5,500 pre-tax to their employees’ federal or private student loans – providing employers with a new tool to recruit and retain quality employees.
Sens. John Thune (R-SD) and Shelley Moore Capito (R-WV) joined Warner in sponsoring the Employer Participation in Repayment Act. To read the bill, click here.
Today in Washington, Senate Democrats are launching the #InTheRed campaign, a series of policy proposals designed to highlight the student debt crisis and the urgency for Congress to act to address it immediately.