Bill links student-loan payments to income
In an attempt to help struggling borrowers stay current on their federal student loans, U.S. Rep. Patrick Murphy this week introduced legislation that would automatically link payments and income.
Federal student loans feature “income-based repayment” options, a safety net for borrowers who don’t make enough to cover their debt. But many borrowers who qualify for the break struggle to navigate the federal government’s bureaucracy, loan experts say.
Murphy’s proposal calls for payroll deductions of student loans. The U.S. Department of Education, which issues student loans, would share data with the Internal Revenue Service. If IRS data shows a borrower’s income is low enough to qualify for a lower payment, that would happen automat- ically, circumventing what Murphy calls a “cumbersome” application process.
“As a CPA, I know that needlessly complicated systems only cause pain, which too many millennials are witness- ing with the current student loan repayment structure,” said Murphy, D-Jupiter.
Americans owe more than $1 trillion in student loans, a debt load that has been widely blamed for holding back the economic recovery in recent years. Meanwhile, borrowers and advisers say negotiating repayment plans is difficult.
“It should be very simple,” said Reecy Aresty, a college adviser in Boca Raton. “But remember: You’re dealing with the federal government.”
West Palm Beach attorney Paul Krasker helps borrowers negotiate repayment plans, and he said the federal bureaucracy leaves many borrowers flummoxed. He said confused borrowers rarely are placed in the correct repayment plan.
Under Murphy’s “Simple Income-Based Repayment Plan,” borrowers would be enrolled automatically.
“On the surface, that sounds like a great idea,” said J.L. Winn, chief executive of TrustRight Student Loan Services in Boynton Beach. “It would save some headache and paperwork.”