U.S. Sen. Marco Rubio, R-Fla., unveiled a proposal on Thursday to eliminate interest for federal student loans.
Rubio showcased the “Leveraging Opportunities for Americans Now (LOAN) Act” which would end interest on federal loans and replace it with a “one-time, non-compounding financing fee that borrowers will pay over the life of the loan.” The proposal would also set up income-based repayment (IBR) plans for students which, Rubio’s office insisted, would ensure “working-class Americans are not further burdened with monthly repayments they are unable to afford.”
“For years, our nation’s outdated federal student loan system has saddled working-class Americans with mountains of debt and accruing interest that they are unable to repay,” Rubio said. “The LOAN Act will ensure borrowers are not trapped in a cycle of debt. Instead of accruing interest, borrowers will pay a one-time financing fee paid out over the life of the federal loan and will be automatically placed in an income-based repayment plan. It’s time that our federal student loan system ensures that those pursuing higher education are able to achieve the American dream without burdening them with debt they can never repay.”
Rubio’s office offered some of the details behind the proposal.
“Beginning with the 2021 school year, all federal direct student loans will have one-time financing fees instead of interest, which will be paid over the life of the loan and not accumulate with age,” the senator’s office noted. “This financing fee will not increase over time and it will finally give borrowers greater understanding of the actual costs of higher education. Borrowers enrolled in school but haven’t graduated before this date have their choice to continue using the current loan system or the new, interest-free loans created by the LOAN Act. Borrowers will automatically be placed in an income-based repayment (IBR) plan, where they pay 10 percent of their earnings in excess of $10,000, except in times of unforeseen financial hardship. Borrowers can still choose the standard 10-year repayment plan, but this will no longer be the default. Borrowers that pay more towards their loan than necessary can have their financing fee reduced, ensuring there is still an incentive to pay off loans in advance. The borrower’s income would be verified by the Treasury based on tax filings. Those earning less than $10,000 annually would not have to contribute toward their loan.”
The United Negro College Fund (UNCF) threw its support behind the proposal.
“UNCF has been a long champion of reforming our financial aid system, and we have been vocal in advocating for reducing the burden on students to repay their loans. I am excited to support a bill that would not only eliminate interest rates on student loans, but create a process that increases equity in our financial aid system and takes unforeseen financial circumstances that would affect a borrower’s ability to repay their loan, regardless of income, into consideration. This is a strong and robust proposal, and low-income students would fare better under the repayment system this bill creates versus our current structure. It is my hope that this bill will spur further conversation and proposals around innovative ways to reform our federal financial aid system that benefits our low-income students,” said Dr. Michael Lomax, the president and CEO of UNCF.
Kevin Derby can be reached at Kevin.Derby@floridadaily.com.