Here’s the good news: A bipartisan bill has been introduced into the Senate that might just solve the single most pressing problem with student debt.
Now the bad news: One of the sponsors is Florida Sen. Marco Rubio. And as Jonathan Chait once so succinctly put it, “Everything Rubio touches has turned to shit.”
But let’s focus on the positive. I’ve made the case before that student loans would be a dramatically less hellish burden if Washington just tweaked the way borrowers repay their debts. Instead of the standard 10-year plan, everyone should automatically be enrolled in a program where they just pay a percentage of their income every month. Options like this already exist to help troubled borrowers, but they’re poorly publicized and signing up is a stupidly complicated process. And as a result, millions of Americans needlessly default on their education debt, even though help is technically just a bit of paperwork away. (To be precise: About 15 percent of borrowers default within three years of starting payments.) Making income-based repayment the baseline option would cure all that financial pain.
Today, Rubio and Virginia Democrat Mark Warner debuted a bill to do just that, called the Dynamic Repayment Act. (The name is terrible. What does "dynamic" mean here?) It looks pretty solid overall. All federal loan borrowers would be enrolled in an income-based program where they paid 10 percent of their earnings each month, with a $10,000 annual exemption. Meanwhile, the government would collect the money directly from workers’ paychecks, just like tax withholding. One potentially controversial part: It would forgive up to $57,500 worth of loans after 20 years, but anything above that amount wouldn’t be forgiven for 30 years. (The current Pay as You Earn repayment program forgives all debts after two decades.) But borrowers who don’t like the income-based option could opt out and set their own payment timetable.
Again, the virtue of this bill is that it would ensure pretty much every student would face a reasonable monthly payment while eliminating the vast majority of defaults. It’s not a plan to reduce student debt. But it would make loans far safer, which needs to be the immediate priority while we solve the much harder problem of making borrowing less necessary to begin with.
Back to Rubio: As you may recall from the sad demise of immigration reform, Rubio doesn’t have a sterling track record of selling his own party on bipartisan policy proposals. And while I can’t think of a principled reason why the House GOP would undercut this idea (one of their own, Tom Petri, has been proposing a similar concept for decades, but he’s notoriously moderate), I wouldn’t put it past them. I can only hope that as Rubio gets closer to a presidential run, his Republican labelmates might feel less apt to sabotage his pet projects.
Or who knows—maybe Democrats won't get on board with the idea. There are a million ways for legislation to die in the Senate.