Merkley Introduces New Legislation to Guarantee Affordable Options for Repaying Student Loans

Merkley Introduces New Legislation to Guarantee Affordable Options for Repaying Student Loans

WASHINGTON, D.C. – Today, Oregon’s Senator Jeff Merkley introduced the Access to Fair Financial Options for Repaying Debt (AFFORD) Act, new legislation that would guarantee all students are able to affordably pay off their student loans by making an income-based repayment option available to all student borrowers.

Additionally, he introduced the Income-Based Repayment Debt Forgiveness Act, which would ensure that borrowers are not hit with a huge tax bill when they complete income-based repayment of their loans.

“As the first in my family to go to college, I know how daunting the idea of taking on tens of thousands of dollars in debt is to students of modest means,” said Merkley. “I still live in the blue collar neighborhood I grew up in, and I hear all the time from parents who fear that sending their kids to college will leave them trapped between large debt payments and small paychecks upon graduation. We need to take that fear out of the equation and ensure that all students can attend college with confidence that they will be able to afford their student loan payments.”

As the cost of tuition has risen across America over the last several decades, it’s become impossible for most students to attend college without borrowing. Yet as attending college requires taking on more and more debt, the prospect of attending college has become more daunting to low-income students, and many recent graduates are struggling to repay their student loans under traditional repayment plans. Fewer young college graduates are able to make other significant investments such as buying a home or a car, creating a drag on the economy.

To fix this problem, the Access to Fair Financial Options for Repaying Debt (AFFORD) Act would create a universal income-based repayment option that would guarantee every student borrower the option to keep their loan payments at a modest, small percentage of their income. Every student could attend college with full confidence that no matter their income after graduation, they will be able to afford the cost of repaying their loans.  

Under the AFFORD Act, students would have a simple choice between two repayment options when they enter into repayment.

One would be the traditional fixed repayment plan, in which borrowers pay the same amount each month over a set period of time to pay off the full balance and interest on the loan. 

The other would be an income-based repayment plan modeled on the current Pay As You Earn (PAYE) model. Under the PAYE model, the borrower would pay 10% of his or her discretionary income and have any remaining debt forgiven after 20 years. The Income-Based Repayment Debt Forgiveness Act would ensure that students are not taxed on debt that is forgiven at the end of this process.

Unlike current income-based repayment options, which have confusing eligibility criteria and which borrowers are often not informed of until after they enter default, this income-based repayment option would be available up-front to all borrowers. Additionally, the AFFORD Act would replace the current confusing array of income-based repayment (IBR) plans that have varying eligibility criteria with this single, streamlined IBR plan.

Both the traditional fixed payment option and the income-based repayment option would be included in the entrance loan counseling required by the Department of Education to educate borrowers about repayment when they start school. Additionally, schools would send students a letter each year informing them of available loan counseling. 

For more information on the AFFORD Act, download a detailed summary of the bill here