16 Jul Letter Calls for Automatic Income-Driven Repayment Plans for Student Loans in Education and Workforce
A new letter released by BPC Action and other stakeholders urges Congress to provide further support to student borrowers in response to the economic fallout from COVID-19. Specifically, the letter calls on lawmakers to enact a system of automatic enrollment in income-driven repayment (IDR) plans, which will work to ensure affordable monthly payments and reduce delinquency and default rates.
While Congress provided much-needed relief through the CARES Act by temporarily suspending monthly payments and interest accruals on Direct Loans, these measures are set to expire on September 30.
“The economic crisis will not be over when payments are set to resume,” said Kenneth Megan, associate director of higher education at the Bipartisan Policy Center. “Many will continue to struggle to meet monthly payments, adding to the millions of borrowers who were already in default or delinquency prior to the pandemic.”
The letter calls on Congress to implement a single IDR plan that, once payments resume, would tie monthly payments to an affordable portion of borrowers’ discretionary income. Borrowers should be automatically enrolled in this plan, with the opportunity to opt out and remain on their current plans. A recent BPC poll of likely voters suggests that auto-IDR has widespread support, with 83% of those surveyed reporting that they are positively inclined towards the policy.
Inaction on the part of Congress will hamper financial security among vulnerable Americans. Black borrowers, in particular, are not only bearing the brunt of the pandemic but are also more likely to struggle to meet their loan obligations, a result of longstanding income and wealth disparities. The BPC poll found that 17% of Black households report that student debt is among their most concerning household debts, compared to only 10% of white households.
“Although the suspension of interest and payment was an important short-term intervention for borrowers, automatic IDR offers a bipartisan, long-term solution,” said Megan. “It will provide crucial flexibility for borrowers and promote financial security during the current economic crisis and beyond.”
Read the letter here.