Proposal to simplify federal student loans deserves consideration

March 5, 2019 | Thomas J. Botzman, president of Misericordia University, via University Business

The Higher Education Act (HEA) of 1965 was part of the Great Society campaign of President Lyndon B. Johnson’s administration. Part of its noble goal was to create opportunities for any student who dreamed of earning a college degree and advancing their career by providing financial aid to students in need.

By any measure, HEA has been a resounding success. Through the years, presidential administrations have reauthorized it nine times, most recently by President George W. Bush in 2008 – providing subtle changes in order to remain current with changing dynamics in higher education and society.

More than 10 years later, HEA is ready for renewal. With U.S. Sen. Lamar Alexander, R-Tenn., a former educator and chair of the senate committee with oversight of higher education, retiring in 2020, it seems an opportune time to update HEA. After several years of limited hope for revision, it appears legislators on both sides of the aisle are recognizing an updated HEA supports future economic growth by growing a skilled workforce.

Interestingly, it seems there is more pragmatic and direct discussion of how an updated HEA can benefit students and families. While there are many facets to HEA, its primary purpose since establishment has been to support students with financial need in order to provide greater access to a college education. Much of the discussion has centered on those facets of financial aid that support a student while in college, such as federal grants and loans. Indeed, the recently passed federal budget slightly increased the annual Pell Grant to $6,095. For many, such as students attending most community colleges, this is sufficient to make attending affordable without loans.

Most four-year college graduates received both grants and student loans. Students who graduate with loans presently face a confusing array of nine possible repayment plans. The revised HEA presents a timely opportunity to simplify the plans, perhaps to one or two options. The first would be a variant of the current standard 10-year repayment plan, which would continue to be the choice for many graduates. It would continue to be similar to most loans where there is a standard payment for a fixed amount of time until the loan is satisfied.

Most four-year college graduates received both grants and student loans. Students who graduate with loans presently face a confusing array of nine possible repayment plans.

The second option is an innovative income-based plan. There are several advantages, as payments would not exceed more than 10 percent of discretionary income. In addition, those who are unemployed or do not reach an established income threshold would pay less. Furthermore, it would remove the need to recertify income annually as is required under the current loan plans. Currently, failure to recertify can lead to a substantial and unexpected increase in payments. Simpler with less undesirable surprises seems to be a theme of this proposal.

One possibility for streamlining repayment is to deduct the loan payment directly from current pay – similar to withholding taxes from payroll. Lawmakers still need to examine several important elements of the income-based plan, though, such as how to account for several jobs leading to multiple income sources, protections around employer access to borrower’s loan information, and how to place repayment in temporary reduction or abeyance during a financial emergency in the family.

Recent discussions and legislative support for grants, such as Pell and the Supplemental Educational Opportunity Grant (SEOG), have led to a somewhat improved outlook for need-based support of students who are ready to tackle the work to attain a college degree. Increased federal and state grants, coupled with institutional financial aid, are the best route to lowering the need for borrowing. Addressing the loan repayment process, especially for subsidized federal student loans, is another step toward giving every student the opportunity to choose their best path forward.

Our country needs students to be ready to become future managers, welders, scientists, teachers, social workers, health care professionals, and so much more. An enhanced, simplified and thoughtful reauthorization of HEA in 2019 is a terrific step in the right direction for everyone.

Thomas J. Botzman is president of Misericordia University in Dallas, Pa.

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