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The College Affordability Act is a Game Changer, Especially for Parents

Michael Lux Blog, News 0 Comments

This week the House Democrats introduced the College Affordability Act of 2019. The news may have gotten buried beneath the many other headlines out of Washington, but the significance of the College Affordability Act should not be overlooked. Even if the bill does not get through Congress, it is a clear statement of Democratic priorities on higher education and a glimpse at potential changes to student debt that could happen in the next couple of years.

The College Affordability Act would streamline federal student loan repayment, expand access Public Service Loan Forgiveness, lower monthly payments for most borrowers, and take steps to make college more affordable for future students.

The legislation covers many different topics, but several highlights should be of interest to most student loan borrowers.

Lower Payments on Income-Based Repayment

Repaying student loans on an income-driven repayment plan can be very complicated. Borrowers can sign up for Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and the confusingly titled Income-Based Repayment for new borrowers.

These plans would be reduced to a single Income-Based Repayment plan. Borrowers would be expected to pay 10% of their discretionary income towards their debt, and forgiveness would come after 20 years. These terms are the same or better than most of the existing Income-Driven Repayment plans.

A noteworthy improvement for borrowers is the change to the definition of discretionary income. Borrowers currently enrolled in an IDR plan have discretionary income calculated based upon 150% of the federal poverty level. The new bill would raise the level to 250%. In other words, borrowers currently make payments based upon income they receive over $18,735 per year. Under the new bill, that number jumps to $31,225. Borrowers making less than 30k per year would see their monthly payments drop to $0.

The change in calculations would be a huge win for parents with Parent PLUS loans…

Parent PLUS Loan Repayment Gets Much Easier

Borrowers with Parent PLUS loans currently can only enroll in the ICR repayment plan. ICR is the most expensive Income-Driven Repayment plan because it charges 20% of a borrower’s discretionary income.

Under the current law, a single parent who earns $50,000 per year has to pay approximately $521 per month if they are on income-driven repayment for their Parent PLUS loans. If the College Affordability Act became law, that monthly payment for that same parent would drop to approximately $156 per month.

The considerable drop is explained because of the discretionary income change and the reduction from the current 20% charge on ICR to 10% on the new monthly payments.

All borrowers, including parents, would also benefit from significant changes to the Public Service Loan Forgiveness (PSLF) program…

Ending the 99% rejection rate on Public Service Loan Forgiveness (PSLF) applications

Many members of Congress have been disappointed with the high rejection rate on Public Service Loan Forgiveness applications.

When PSLF was first created, the idea was that student loan borrowers could work for the government or a 501(c)(3) non-profit and get their student debt forgiven after ten years of payments.

The sad reality is that the PSLF program, as it is currently constructed, is a maze of red tape and fine print. Certain repayment plans, such as extended repayment and graduated repayment, do not count towards PSLF. Other loans, such as FFEL loans, are not eligible for PSLF, but they can be made eligible through federal direct consolidation.

The complicated requirements have led to many borrowers getting denied when they apply to have their loans forgiven. Making things worse is the fact that many customer service representatives at the loan servicers told borrowers they were eligible when, in reality, they were not. Documents recently disclosed in one lawsuit showed that top executives at loan servicers didn’t even understand the repayment plan options and consequences.

The College Affordability Act would address many of these issues. Borrowers who were on the wrong repayment plan would be able to count the prior payments as long as they switch to the correct plan. Borrowers who have loan eligibility issues would be able to consolidate and count previous payments.

Streamlining Repayment

The College Affordability Act would also make repayment far less complicated.

Rather than having many different repayment plans to navigate, borrowers would have two choices: an Income-Based Repayment plan and a ten-year repayment plan.

Borrowers opting for Income-Based Repayment could verbally enroll via a secure call with their loan servicer, and they could also choose automatic recertification.

This minor change would be a massive improvement over the current process. Right now, if a borrower fails to recertify their income on time, their payments can go up dramatically, and they risk interest capitalization. Loan servicers have also opted to push borrowers in the direction of a forbearance or deferment instead of IBR because the IBR process takes longer and requires more paperwork. Making things easier on the servicers would eliminate an incentive that they currently have to offer bad advice.

Making College More Affordable

Based upon the name, it shouldn’t be a surprise that the College Affordability Act (CAA) take steps to lower the price of higher education.

The CAA would take several steps to help current and future students, including:

  • Making community college tuition-free for all students,
  • Creating a federal and state partnership to help lower the cost of public universities,
  • Increasing the value of Pell Grants, and;
  • Expanding access to dual-enrollment programs for high school students to college credits.

Steps would also be taken under the CAA to hold colleges accountable for student success. These steps include cracking down on for-profit colleges, blocking access to taxpayer money from low-quality schools, and raising standards for college accreditation.

Could the College Affordability Act pass and become law?

The odds of immediate passage of the College Affordability Act of 2019 are slim.

Many provisions of the CAA are in direct response to steps taken by the Trump Administration and Secretary of Education Betsy DeVos.

The bill may have an excellent chance at getting through the House of Representatives, but it is unlikely even to get a vote in the Republican-controlled Senate. Even if it were somehow able to make it through Congress, President Donald Trump hasn’t given any indication that he would support or sign the legislation.

Even though the College Affordability Act of 2019 is a long shot, the 2021 version could have much better odds of passage, depending upon the results of the 2020 elections.

Perhaps the most exciting part of the proposed legislation is the fact that it contains many specific steps that have been identified to help past, present, and future students. Borrowers won’t be seeing any immediate relief, but there are definite signs of progress and hope for a more affordable future.