Quick Takes (v39): Help for Student Loans

Quick Takes

We're a few days away from the next Democratic debate, where (I hope) we'll learn more about what the candidates want to do, and how they want to do it.

At least a few of them have come out with plans for free college and/or to wipe out existing student debt; both of those ideas have strong support from some quarters, and equally strong disapproval from others.

On the plus side? Moves such as free college 'level the playing field' for people who cannot afford to go to college, or who cannot get a well-paying job that will allow them any kind of  chance to pay off the loans they took out to go to college. And that's an American Dream killer, right?

On the other side of the equation is the thinking that the government is not responsible for this, these are handouts not hands up, and for every story the candidates tell of someone who comes out of college with six-figure debt, there are an equal number of stories of people who had the debt, worked hard, and paid it off.  Such is the conundrum we face, on this policy and on pretty much everything else.

But are there things we can do to help that are less drastic than "free college" and "no more student loan debt" that might be amenable to folks on both sides?  A bipartisan handful of Representatives - Suzanne Bonamici (D-OR), Paul Mitchell (R-MI) Seth Moulton (D-MA) and Brian Fitzpatrick (R-PA) - think there is. They've come together to submit the Streamlining Income-driven, Manageable Payments on Loans for Education (SIMPLE) Act, which is designed to keep loan holders from default. Take a look at the bill's summary:

The SIMPLE Act protects some of the most vulnerable student loan borrowers—those who can’t afford full loan payments, those who are in immediate danger of default, those who have previously defaulted on their debt, and those who are totally and permanently disabled—from the severe consequences of default. The bill uses information already on file at the U.S. Treasury to connect borrowers automatically with existing protections, including affordable monthly loan payments. The legislation also automates the annual process for updating income information while enrolled in these plans, ensuring that borrowers continue to make affordable payments.

The data are stark. The bill notes that more then 8 million are in default, and the number continues to grow; more than a million people default on student loans each year, including a subset that has defaulted more than once. And, small balance loan holders are more likely to default than those holding six-figure balances - but the ones with six-figure balances are the ones we hear about all the time.

The consequences are also stark: the obvious hits on credit reports, which have all kinds of ramifications for people that can have a huge impact on their daily lives, as well as on their ability to pay back their loans; wage garnishment, withholding of tax refunds, and more.

So, what does the bill propose?

It outlines a handful of specific problems and solutions, which primarily revolve around the government using information already on file to help make sure that borrowers are getting timely information to help them avoid default. There are provisions for the Department of Education to

• use information already collected by the Treasury Department to automatically verify eligibility for discharging loans for people who are deemed totally and permanently disabled, instead of requiring a three-year cycle of paperwork to discharge the loans. Currently, many people are having their loans reinstated simply because the appropriate paperwork wasn't filed. 
• use information on file with Treasury to ensure eligible borrowers in danger of default are aware of income-driven repayment plans, which would allow them to make smaller payments and not go into default; it also allows people to be automatically placed into these repayment plans based on the income information Treasury has on file. Default rates are much lower in the income-drive plans than in the standard repayment plans, according to research cited in the bill.
• automatically put borrowers who have previously defaulted and completed a loan rehabilitation plan into an income-driven repayment plan, instead of the standard repayment plan.  Approximately one-third of folks who go through the rehabilitation process end up defaulting again within a couple of years.
• eliminate the annual paperwork requirement for those enrolled in income-driven repayment plans; instead, the process would be automated based, again, on information on file at Treasury.  This will eliminate spikes in payment requirements that drive from missed paperwork requirements. 

Not free. Not a give-away. Not a complete do-over. Just requiring government departments to talk to each other, and to make life easier for citizens.

Isn't this the kind of thinking that we should be applying to all kinds of problems?