Senators to Dept. of Education: Proposed Changes to Student Loan Program could Harm Borrowers

Washington, D.C. – Today a group of Senate Democrats wrote to U.S. Secretary of Education Arne Duncan to express concern with a draft proposal to reform the Pay as You Earn (PAYE) program for student loans.  The program allows eligible borrowers to cap their monthly payments at 10% of discretionary income and forgives remaining balances after 20 years.  However, a proposal currently under review by the Department would, according to the Senators, “add unnecessary complexity, increase costs for responsible low- and middle-income borrowers, and result in the disparate treatment of graduate and undergraduate borrowers.”

The letter was led by Senator Sheldon Whitehouse (D-RI), and signed by Senators Patty Murray (D-WA), Ron Wyden (D-OR), Jack Reed (D-RI), and Tammy Baldwin (D-WI).

“The Department already offers four separate income-driven student loan repayment plans with varying eligibility requirements, costs, and benefits.  Instead of expanding PAYE, the draft proposal would add a fifth option, called the Revised Pay As You Earn (REPAYE) plan, to the existing maze of programs,” the Senators wrote.  “The proposed program includes new regulations that would extend repayment periods by as long as five years for any student with graduate debt, potentially costing those borrowers thousands of dollars in additional payments.  The federal government should be making it easier for students to pursue their dreams after graduation, not saddling them with additional cost and anxiety.”

The existing PAYE program is restricted to student borrowers who first took out loans after September 2007, borrowed at least once after September 2011, and can demonstrate a “financial hardship.”  Of the 3.5 million borrowers currently enrolled in one of the Department’s four income-driven repayment plans, approximately 15 percent are enrolled in the PAYE program. The Department’s decision to expand the PAYE program follows a June 2014 directive from President Obama to expand PAYE eligibility to over 5 million existing student borrowers.  Unfortunately, the current proposal under review by the Department of Education creates new complexities, particularly for graduate school borrowers. 

The full text of the letter is below.

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June 16, 2015

The Honorable Arne Duncan

Secretary of Education

U.S. Department of Education

400 Maryland Avenue, S.W.

Washington, DC 20202

Dear Secretary Duncan:

We write regarding the negotiated rulemaking process for changes to the Pay as You Earn (PAYE) program.  At a time when outstanding federal student loan debt exceeds one trillion dollars, this essential program keeps payment levels affordable and manageable for millions of Americans.  We share your goals of expanding eligibility for PAYE and applaud your efforts to improve the customer service and support to the 41 million Americans with federal student loan debt. However, we have significant concerns about the Department’s draft proposal, which was recently presented to the negotiated rulemaking committee.  The draft proposal would add unnecessary complexity, increase costs for responsible low- and middle-income borrowers, and result in the disparate treatment of graduate and undergraduate borrowers.

The Department already offers four separate income-driven student loan repayment plans with varying eligibility requirements, costs, and benefits.  Instead of expanding PAYE, the draft proposal would add a fifth option, called the Revised Pay As You Earn (REPAYE) plan, to the existing maze of programs.  The proposed program includes new regulations that would extend repayment periods by as long as five years for any student with graduate debt, potentially costing those borrowers thousands of dollars in additional payments.  The federal government should be making it easier for students to pursue their dreams after graduation, not saddling them with additional cost and anxiety.

The Direct Loan program continues to generate significant revenue for the federal government, estimated to total $89 billion over the next ten years.  Whatever changes the Department makes to income-driven repayment options, the government will undoubtedly continue to generate revenue from borrowers struggling to repay their student loan debt.  The Department can and should channel a substantial portion of these revenues to expanding and improving the existing PAYE plan.  The goal should be to help as many borrowers as possible, not to maximize government revenue.     

When President Obama announced his intention to make student loans more affordable last year, he spoke of the need to simplify repayments for students with loans too old to qualify under the current PAYE rules. These sentiments have been echoed by students and advocates who have since weighed in on this issue.  The arbitrary eligibility limits under PAYE make little sense, and we hoped the President’s announcement would lead the Department to improve the current program.  Instead, the current draft proposal presents unnecessary eligibility restrictions that would make loan repayment even more challenging for graduate student borrowers.  We urge you to support simple and straightforward action to extend the existing PAYE plan to cover additional borrowers.