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Washington, D.C. – U.S. Senators Marco Rubio (R-FL) and Mark Warner (D-VA) introduced the Dynamic Student Loan Repayment Act, legislation that would simplify student loan repayment by making income-based repayment the default option for borrowers. By encouraging greater participation in income-based repayment plans, the bill will help borrowers avoid default during periods of low earnings.
“Our current federal student loan program is outdated and often leaves students and college graduates burdened with a significant amount of debt. This bill will ensure that people with federal student loans have affordable payments and stronger borrowing protections,” said Rubio. “As someone who once owed more than $100,000 in student loans, this issue is personal to me, and I will continue working to simplify this complex and bureaucratic student loan system.”
“As the first person in my family to graduate from college, I would not have had the chance to be a successful entrepreneur if I had left college with overwhelming student loan debt,” said Warner. “But federal student loan programs are complicated and burdensome and can do more to help borrowers succeed. This commonsense bill would make repayment that is contingent on a person’s income the default option for every student coming out of college with student loan debt.”
While current federal student loan programs include numerous protections for borrowers to avoid default, many students don’t use them because they aren’t aware of their options or because the enrollment process and paperwork can be confusing and burdensome. As a result, the three-year national default rate stands at more than 11 percent, an outcome that is not only expensive for taxpayers but also ruinous for borrowers.
The bill would make student loan repayment more manageable by replacing the complicated array of loans, subsidies, deferments, forbearances, and repayment options with a single, streamlined, user-friendly repayment plan. Student loan payments would be capped at 10 percent of a borrower’s income, not counting the first $10,000. For example, a borrower making an annual salary of $40,000 would pay 10 percent of $30,000 – or $3,000 a year. This will allow borrowers to pay an affordable percentage of their income until the loan is repaid.