Lawmakers Introduce Bill To Prevent Runaway Student Loan Interest

Forbes

Preston Cooper

June 28, 2023

The federal government faces a monumental challenge this fall: after three years of suspended payments on federal student loans, the Department of Education must transition tens of millions of borrowers back into repayment. It will not go smoothly. Borrowers are likely to be confused about whether they must make payments or not, given the repeated extensions of the pause. Several student loan servicers have dropped out of the system, and others are cutting call-center hours.

At the very least, borrowers will need extra encouragement to take affirmative steps such as selecting a repayment plan and making their payments on time every month. That’s where a new proposal from Representatives Burgess Owens (R-UT), Lisa McClain (R-MI), and Virginia Foxx (R-NC) comes in.

What’s in the Republican plan to initiate repayment

The Federal Assistance to Initiate Repayment (FAIR) Act aims to attack this problem on three fronts. First, simplify and streamline the array of loan repayment plans. Second, prevent runaway accumulation of interest on federal student loans. Third, provide a stronger financial incentive for borrowers to pay down their debts.

Streamline repayment plans. Currently, federal student loan borrowers can select from a confusing array of repayment options. The FAIR Act pares those options down to two: a standard ten-year “mortgage-style” plan and a single income-driven repayment (IDR) plan. The IDR plan requires borrowers to pay 10% of their income above 150% of the federal poverty level ($21,870 for a single person in 2023).

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