Aligning the Means and the Ends g g University of Michigan Conference on Student Loans October 26 2013 October 26, 2013 Debbie Cochrane, dcochrane@ticas.org 1
TICAS • The Institute for College Access & Success (TICAS) is an g ( ) independent, nonprofit research and policy organization that works to make higher education more available and affordable for people of all backgrounds affordable for people of all backgrounds. • We focus on the role of financial aid in supporting college affordability, enrollment, persistence, and completion. • Since 2005 our Project on Student Debt has increased public • Since 2005, our Project on Student Debt has increased public understanding of rising student debt and its implications for our families, economy and society. 2
The Problem Income gaps in college enrollment Income gaps in college enrollment, persistence, and graduation are widening. These gaps cannot be closed by financial aid policy alone, but research shows that aid can increase , enrollment , persistence, and completion. So, how can federal student aid better ensure access and support success? 3
Topics Covered in Full Report • Student eligibility and accountability • College eligibility and accountability College eligibility and accountability • Grant aid • Student Loans • Tax Expenditures • Better Information • Ways to pay for reforms 4
Loan Context • As college costs have risen faster than family incomes and available grant aid, student loans help fill the growing gap. • Without addressing the real and perceived risks of borrowing, the U S won’t be able to achieve its college completion goals the U.S. won t be able to achieve its college completion goals. • More work needs to be done on the cost side, but given that our current system relies so heavily on borrowing, how can we make sure that student loans support access, success, and affordability , particularly for low ‐ income students? and affordability , particularly for low income students? 5
One Loan for Undergraduates • Replace subsidized and unsubsidized Stafford loans with one new type of loan, but keep current Stafford loan limits yp , p • Fixed interest rates and no fees • Low in ‐ school interest rate based on the government’s cost of i h l i b d h ’ f borrowing • Higher, capped out ‐ of ‐ school rate • Interest ‐ rate guarantee so borrowers in repayment aren’t stuck paying much higher interest rates than on new loans p y g g • Interest ‐ free deferments for Pell Grant recipients 6
Income ‐ Based Repayment (IBR) • TICAS developed the policy framework and advocacy campaign that led to the creation of the Income ‐ Based Repayment (IBR) plan,* and built IBRi f IBRinfo.org to raise awareness of IBR and related programs. i f IBR d l d • IBR was designed to help contain the real and perceived risks of borrowing, especially for students who could not afford or succeed in b i i ll f d h ld ff d d i college without loans. • IBR h l IBR helps ensure that monthly payments are manageable and provides a th t thl t bl d id light at the end of the tunnel. • IBR IBR cannot solve the cost or debt problem on its own: loan repayment t l th t d bt bl it l t policy is just one piece of a much larger puzzle. * See Addressing Student Loan Repayment Burdens: Strengths and Weaknesses of the Current System and TICAS’ Plan for Fair Loan Payments. 7
Shortcomings of Current System • Information challenges – Complexity of loan types and repayment options p y yp p y p – Lack of awareness about income ‐ driven repayment (IDR) plans: IBR, PAYE, and ICR • Process and design issues with existing IDR plans – Multiple IDR plans with varying features and eligibility requirements – Barriers to enrollment and renewal – Benefits could be better targeted to those who need help the most – Taxation of forgiven amounts creates a new financial burden g 8
Improve Income ‐ Driven Repayment (1/2) • Replace the four existing income ‐ driven plans with a single, streamlined plan that has the following features: p g – Available to all borrowers, regardless of their debt or income level, whether their loans are Direct or FFEL or when they borrowed whether their loans are Direct or FFEL, or when they borrowed – Cap monthly payments at 10% of a borrower’s income – Provide forgiveness after 20 years of payments – Target benefits to borrowers who need help the most: Target benefits to borrowers who need help the most: • Phase out the income exclusion for borrowers with high incomes • Eliminate the standard payment cap on monthly payment amounts 9 For more information about TICAS’ proposal, see http://www.ticas.org/pub_view.php?idx=906.
Example Borrower A in Proposed IDR Plan OB/GYN, married with two children, has $192,000 in loans, earns $45,000 during 4 ‐ year residency and then $190,000 in private practice, increasing 4% a year. 10 For more information about TICAS’ proposal, see http://www.ticas.org/pub_view.php?idx=906.
Example Borrower A in Proposed IDR Plan OB/GYN, married with two children, has $192,000 in loans, earns $45,000 during 4 ‐ year residency and then $190,000 in private practice, increasing 4% a year. 11 For more information about TICAS’ proposal, see http://www.ticas.org/pub_view.php?idx=906.
Example Borrower B in Proposed IDR Plan Married couple, have a child in year 8, $50,000 in combined loans, earn $60,000 in first year, income increases 4% a year. 12 For more information about TICAS’ proposal, see http://www.ticas.org/pub_view.php?idx=906.
Example Borrower B in Proposed IDR Plan Married couple, have a child in year 8, $50,000 in combined loans, earn $60,000 in first year, income increases 4% a year. 13 For more information about TICAS’ proposal, see http://www.ticas.org/pub_view.php?idx=906.
Improve Income ‐ Driven Repayment (2/2) • Make it easier for borrowers to keep their income information up to date p – Expand the IRS Data Retrieval Tool to draw in data from W ‐ 2 forms – Allow borrowers to provide advance permission to the Department of Education to access their earnings data for a period of time Education to access their earnings data for a period of time. • Don’t treat forgiven loan balances as taxable income. • Encourage and make it easier for borrowers to prepay their loans if they are able to, so they accrue less interest. y , y For more information about TICAS’ recommendations, see Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success. 14
Improve Loan Counseling • Require entrance counseling before students have committed to borrowing. • Provide individualized counseling based on the borrower’s specific situation and needs. • In exit counseling, encourage borrowers to weigh the trade ‐ offs of having lower monthly payments, but potentially higher total payments, in an IDR plan, based on their own priorities and expectations. l b d th i i iti d t ti • Warn students about the risks of private loans, compared to federal loans. • Conduct consumer testing of loan counseling practices and track the effect of counseling on students’ decisions. For more information about TICAS’ recommendations, see Aligning the Means and the Ends: How to Improve Federal Student Aid and Increase College Access and Success. 15
Direct Distressed Borrowers to IDR • Ensure that borrowers receive key information about their repayment options not only before they make their first p y p y y payment, but also when their payment patterns indicate likely financial distress. • Automatically enroll severely delinquent borrowers in an IDR plan, once they miss at least six consecutive payments. 16
Need for More Research and Data (1/2) • How do perceptions and fears about borrowing affect college ‐ going choices, especially for lower income students? • What really works (and doesn’t work) in entrance/exit loan counseling? • How do borrowers choose repayment plans? How often do they switch? What information affects their decisions, and how? • How are borrowing decisions affected by different aspects of student loan policy, such as the interest rate, monthly payment amounts, total payment amounts, likelihood of delinquency or default, potential for negative amortization, and availability of loan forgiveness? 17
Need for More Research and Data (2/2) • What are the costs and outcomes for borrowers in IDR plans, compared to other plans? What share of borrowers in each plan are making scheduled payments, in forbearance, in deferment, delinquent, or in default? i f b i d f d li i d f l ? • At key intervals after entering repayment, what share of borrowers are successfully making payments, in deferment or forbearance, or heading f ll ki i d f f b h di toward delinquency or default? • How do default and loan repayment plan usage patterns vary by school and type of school? • How might changes to loan policy affect borrowers in different circumstances (e.g., debt level, income, employment status, assets, age, family status)? 18
Questions? Questions? Debbie Cochrane, dcochrane@ticas.org 19
Recommend
More recommend
