WASHINGTON, D.C. – U.S. Senator Angus King (I-Maine) released the following statement today on the conclusions of a three-part study conducted by the Federal Reserve Bank of New York, which found that a significant portion of student borrowers who ultimately default on their education loans are those who carry relatively modest loan balances.

Earlier this year, Senator King, along with Senator Richard Burr (R-N.C.), reintroduced the Repay Act, legislation that would simplify the complex maze of federal student loan repayment programs by consolidating many of the benefits of current repayment programs into two plans: a fixed repayment plan, based on a 10-year period, and a single, simplified income-driven repayment option. Eliminating several of the duplicative programs could make it easier for borrowers to understand repayment and chose a plan that’s best for them.

“This series highlights a troubling phenomenon that’s not only hurting students, who will suffer the financial consequences of not being able to afford their loans, but also the American taxpayers who will ultimately foot the bill,” Senator King said. “To me, these reports underscore the need for legislation like the Repay Act. By simplifying the repayment process and making it easier for borrowers to avoid missing a payment or defaulting altogether, we’re giving students a better shot at being successful and reducing the burden on the taxpayers’ shoulders. It’s a common sense solution, and I look forward to working with my colleagues in Congress to advance this important issue and provide clarity and relief to thousands of borrowers in Maine and millions more across the country.”

The three part series, entitled “The Student Loan Landscape” was conducted by the Federal Reserve Bank of New York and concluded, among other things, that while 37 percent of current student loan borrowers have experienced delinquency or default at some point, the median loan balance is about $14,000, with two thirds of borrowers owing $25,000 or less. Additionally, the series finds that borrowers with lower balances have the highest default rates, with a nearly 34 percent default rate for borrowers with balances less than $5,000. Given that income-based repayment plans offer ways for low-income and unemployed borrowers to avoid default, even if they are unable to make any payments, this data suggests that the driver of defaults may be related to confusion about the mechanics of repayment rather than the amount of debt per borrower. With this in mind, the repayment simplifications contained in the Repay Act could help alleviate a driver of high student loan default rates: the level of defaults on small loan balances. The three series can be viewed here: Series 1, Series 2, and Series 3.

Current graduates face a maze of federal student loan repayment programs from which to choose that often leave students confused about which program best fits their needs. In addition, due to years of changing eligibility terms and the introduction of new programs, little has been done to ensure that taxpayer dollars are not misdirected in subsidizing borrowers who do not need additional assistance.

The Repay Act addresses those issues to make loan repayment more affordable for the middle class by eliminating up to six duplicative repayment options, streamlining eligibility terms, and ensuring that borrowers will never direct more than 15 percent of their discretionary income to their loan payments. The proposal also ends the disproportionate federal subsidization of loan payments for high income borrowers and sets parameters for the amount of debt that can be forgiven over certain periods of time.  Importantly, the Repay Act also eliminates a provision in the tax code that requires borrowers whose loans are forgiven due to total and permanent disability to pay tax on the discharged debt.

These are commonsense changes supported by broad groups of stakeholders, including the National Association of Student Financial Aid Administrators and the American Council on Education. This legislation is estimated to save taxpayers over $3.8 billion over the next decade.

To read more about the Repay Act, click HERE, and to see the full legislative text, click HERE.

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