[PPT] - Aligning the Means and the Ends g g University of Michigan PowerPoint Presentation

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Aligning the Means and the Ends g g

University of Michigan Conference on Student Loans October 26 2013

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October 26, 2013 Debbie Cochrane, dcochrane@ticas.org

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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

ur families, economy and society.

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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?

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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

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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
ur 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?

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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

i h l i b d h ’ f

Low in‐school interest rate based on the government’s cost of

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

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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 i f IBR d l d IBRinfo.org to raise awareness of IBR and related programs.

IBR was designed to help contain the real and perceived risks of

b i i ll f d h ld ff d d i borrowing, especially for students who could not afford or succeed in college without loans. IBR h l th t thl t bl d id

IBR helps ensure that monthly payments are manageable and provides a

light at the end of the tunnel. IBR t l th t d bt bl it l t

IBR cannot solve the cost or debt problem on its own: loan repayment

policy is just one piece of a much larger puzzle.

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* See Addressing Student Loan Repayment Burdens: Strengths and Weaknesses of the Current System and TICAS’ Plan for Fair Loan Payments.

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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

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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

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