New Student Loan Bill Would Help Borrowers Access More Affordable Payments - Newsweek

A newly introduced bill in Congress would automatically place struggling federal student loan borrowers into more affordable repayment plans before they fall into default.

The legislation, the Streamlining Income-Driven, Manageable Payments on Loans for Education (SIMPLE) Act, comes as student loan delinquencies remain elevated after the end of pandemic-era relief measures.

“Bureaucratic hurdles should not keep student loan borrowers from more affordable repayment plans,” Oregon Democratic Representative Suzanne Bonamici, who introduced the bill, said in a statement. “The SIMPLE Act is commonsense legislation to use existing taxpayer information to automatically place people in plans that better meet their financial needs and provide protection from harmful default.”

Defaulting on a federal student loan can trigger serious consequences, including wage garnishment, credit score damage and even the loss of some federal benefits.

According to Forbes Advisor, roughly 13 percent of student loan borrowers had defaulted on their loans as of March this year, representing roughly 9 million borrowers who owe approximately $220 billion.

The law could impact borrowers who have become delinquent not necessarily because they are unwilling to pay but instead because they are struggling to navigate the complex repayment system.

Several income-driven repayment (IDR) programs that can significantly reduce monthly payments remain confusing to borrowers, especially after a spree of changes enacted by President Donald Trump’s Department of Education.

The SIMPLE Act was introduced on September 2 by Bonamici, an Oregon Democrat, along with several Democratic co-sponsors.

The bill is designed to help borrowers avoid delinquency and default by simplifying the enrollment process in income-driven repayment plans.

“The SIMPLE Act addresses a pretty basic problem: Borrowers shouldn't wind up in default simply because they failed to handle the paperwork needed to get into a payment plan they could actually afford,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek.

Under the legislation, federal student loan borrowers who become at least 31 days delinquent would receive notices outlining their eligible repayment options, including estimated monthly payments under available IDR plans.

Borrowers who are at least 75 days delinquent and have not selected a repayment plan would then be automatically enrolled in the "most favorable" income-driven repayment plan available to them, with their eligibility determined using existing IRS income data.

“The idea I like here is that it changes the default setting,” Ryan said. “Instead of waiting for someone who's already struggling to successfully navigate the system, the system intervenes before the financial damage gets worse.”

The bill would also eliminate the annual paperwork requirements for borrowers already enrolled in IDR plans and use existing taxpayer information to verify borrower eligibility and calculate payments.

“By notifying borrowers after 31 days of delinquency and automatically enrolling eligible borrowers into their lowest-payment income-driven option after 75 days, the proposal could prevent defaults and eventual collection actions without forgiving the debt,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.

“The idea is incredibly appealing, particularly at a time when the federal repayment system is undergoing enormous change, but it's difficult to say if it will find support when many efforts like this are automatically linked to forgiveness instead of allowing more fiscal capabilities on the part of borrowers.”

Income-driven repayment plans generally tie monthly federal student loan payments to a borrower's income and family size, rather than the total loan balance. These plans can make payments more affordable, especially for borrowers experiencing financial hardship.

The SIMPLE Act premise is built on the idea that many borrowers could benefit from these programs but never enroll because of paperwork requirements or administrative barriers.

“Problems arise for many student loan borrowers not due to an inability or unwillingness to pay, but rather due to needless complexity within the system,” said Karen McCarthy, Vice President of Public Policy & Federal Relations, National Association of Student Financial Aid Administrators (NASFAA), in a statement.

“Many are simply unaware of generous income-driven repayment plans that can lower their monthly payments. The SIMPLE Act would expand access to affordable income-driven repayment options by automatically enrolling struggling borrowers in those plans before they experience the punitive consequences of default. The financial aid community stands in support of this bill.”

The legislation is aimed at borrowers who are falling behind on payments and at risk of default.

According to Bonamici's office, the consequences of default disproportionately affect low-income borrowers and borrowers with smaller balances who never completed a degree.

For these borrowers, automatic enrollment in an income-driven repayment plan could potentially reduce monthly payments before they reach default status.

The SIMPLE Act has been introduced in the House of Representatives and would need approval from both chambers of Congress before being sent to President Donald Trump for signature.

If enacted, the legislation would require the Department of Education to identify eligible delinquent borrowers, provide repayment-plan notices and then automatically enroll qualifying borrowers into income-driven repayment plans using their existing taxpayer information.

However, Ryan said he has little optimism that the bill will pass quickly in its current form.

“Earlier versions of the SIMPLE Act did have Republican support, so I wouldn't call the concept dead,” Ryan said. “But right now I'd view standalone passage as a long shot unless Republican sponsors come aboard or pieces of it get folded into a broader higher-education or student-loan package.”

Contact Newsweek editors on this story: Jason Lemon and Gray R. Thomas