Proposal Would Auto-Enroll Student Loan Borrowers Into Affordable Plans

Student loan borrowers at risk of defaulting on their loans may soon have a simplified path toward more affordable payments.

U.S. Reps. Suzanne Bonamici of Oregon and Brian Fitzpatrick of Pennsylvania — a Democrat and a Republican — introduced the Streamlining Income-driven, Manageable Payments on Loans for Education (SIMPLE) Act on Wednesday. The bill would take several steps to simplify the process to enroll in and stay enrolled in income-driven repayment (IDR) plans.

IDR plans allow borrowers to make lower monthly payments based on their income, with the opportunity for complete forgiveness after 20-25 years.

“For too many, student loan debt is a crippling burden that impacts borrowers’ involvement in our economy and achieving personal goals like owning a home, starting a family, and supporting the community,” Fitzpatrick said in a joint statement with Bonamici. “I am proud to support the SIMPLE Act, which will provide our students and borrowers what they deserve: more efficient access to the repayment resources already at their disposal.”

This is the fourth time lawmakers have proposed a version of the SIMPLE Act. The first proposal in 2016 attracted 12 co-sponsors, including eight Democrats and four Republicans.

The latest version of the bill has the support of student and borrower advocacy groups including the Institute for College Access & Success, Third Way, the National Association of Student Financial Aid Administrators, and New America.

Before the COVID-19 pause on student loan payments, approximately 10% of borrowers with federal student loans defaulted on those loans within three years of beginning repayment.

The pandemic pause slowed the bleeding, but the SIMPLE Act aims to give these borrowers an easier out before they enter default.

According to an overview of the bill, the act would require the Department of Education (ED) to send borrowers in immediate danger of defaulting a notice about lower monthly payments available through IDR. The bill would allow the U.S. Treasury Department to share data with ED so that the department can tell these at-risk borrowers what their new monthly payments would be.

The 2019 version of the bill said ED may request income data from the Treasury Department after a borrower is at least 60 days delinquent on their loan. ED would automatically enroll a borrower 120 days past due into the plan with the lowest monthly payment, according to the 2019 bill.

This part of the proposal is similar to language ED put forth for a new IDR plan during negotiated rulemaking in December. However, negotiators failed to reach consensus on the new plan, and ED recently delayed the release of its final proposal, although it still aims to allow borrowers to enroll in this plan in the summer of 2023.

The SIMPLE Act also includes enrollment options for those who have already defaulted on their loan but were able to rehabilitate it. According to the bill overview, ED would use income information to automatically enroll these borrowers when they reach good standing with their loan.

Many borrower advocates have claimed that the recertification process is a major barrier to borrowers taking advantage of IDR benefits. Borrowers must resubmit income and employment information to the department each year or risk being kicked from the program.

The SIMPLE Act aims to remove this hurdle.

Instead, ED would continue communicating with the Treasury Department to keep track of a borrower’s yearly income. ED would then use tax information to determine the borrower’s monthly payments under their IDR plan.