U.S. Rep. Susan Wild (D-PA) introduced legislation this week that would restructure the federal student loan repayment system.
Americans hold more than $1.5 trillion in student loan debt, and federal loans account for much of this debt. Many Americans are at risk of defaulting on their student loans because of high interest rates and unaffordable monthly loan payments. Wildʻs bill, the Simplifying Student Loans Act, H.R. 8700, seeks to reduce the financial burden on current and future borrowers in several ways.
First, it would overhaul the loan repayment process. Specifically, it would replace the numerous existing federal student loan repayment plans with two repayment options: one fixed repayment plan and one income-based repayment plan. Research shows that borrowers enrolled in income-based repayment plans have better outcomes, lower monthly loan payments, and are less likely to default on their student loans.
Further, the bill limits the amount of a person’s monthly discretionary income that they must spend on student loan payments, which will help them afford their monthly payments.
Finally, it would establish a one percent interest rate on federal student loans. This is significantly lower than the current average student loan interest rate.
Taken together, said Wild, these updates would reduce the strain on students and families, help them achieve their long-term financial goals, and strengthen the economy.
“Whether it’s a four-year college, community college, or a technical school, we know higher education is a pathway to financial stability in America,” Wild said. “But with prohibitively expensive tuition, students often must take out multiple loans to pay for college — each with its own interest rate and repayment schedule. I’ve heard heartbreaking stories of people drowning in student loan debt and owing more in loans 10 years post-graduation than immediately after earning their diploma. By making student loans easier to understand and cheaper, simpler, and quicker to repay, the Simplifying Student Loans Act will help solve these problems.”