The Proposal

Our proposals are designed to focus federal assistance on improving access to higher education by providing:

	Maximum benefits to students while they are attending school, and
	Targeted help to borrowers facing financial difficulty once they have left school.

We offer five major policy proposals:

1. Increase Stafford Loan Limits

Issue: Federal student loans offer better terms to students and families than any other source of loan capital available in the consumer marketplace. Unfortunately, borrowing limits on federal student loans have not changed since 1992 and freshman loan limits have essentially been unchanged since 1972. Today, freshmen are limited to borrowing a maximum of $2,625 per year in federal student loans, sophomores $3,500, and juniors and seniors are limited to $5,500 per year.

Because of these outdated limits students are increasingly taking out private sector loans that offer less favorable terms. Students would be better served if they had greater access to less-expensive federal loans that carry the lowest possible interest rate and the best possible terms, such as in-school interest exemptions, deferments, cancellation options and varied repayment plans.

Proposal: We recommend increasing loan limits in each of the first two years of postsecondary education, and creating of “flexible borrowing accounts” for the remainder of undergraduate study. A table summarizing these proposed changes is attached. Those students who complete their degrees in four years will have access to more loan funds per year than will students who take a longer period of time to complete their studies. We also recommend increasing loan limits for graduate and professional students.

To minimize unnecessary borrowing, we recommend giving schools flexibility to set lower loan limits for entire groups of students -- for example, for all first-year students or for all students at a lower cost school. Because school officials have detailed knowledge of their student body, we believe that they are in the best position to determine whether limits at their school should be lower than federal law permits.

Current and Proposed Maximum Loan Limits - The Coalition for Better Student Loans
Dependent Undergraduate
	Year of Study	1st	2nd	3rd	4th	5th	6th	Total
	Current	2,625	3,500	5,500	5,500	5,500	--	23,000
	Current Total Cumulative Borrowing	2,625	6,125	11,625	17,125	22,625	--	23,000
	Proposed 4-Year Program	4,000	6,000	10,000	10,000	--	--	30,000
	Proposed 5- or 6-Year Program	4,000	6,000	<-------------- 20,000* ------------->				30,000
	Proposed Total Cumulative Borrowing	4,000	10,000	20,000	30,000	30,000	30,000	30,000
	* $10,000 annual maximum after second year until aggregate is reached
Independent Undergraduate
	Year of Study	1st	2nd	3rd	4th	5th	6th	Total
	Current	2,625	3,500	5,500	5,500	5,500	--	23,000
	Current Additional Unsubsidized	4,000	4,000	5,000	5,000	5,000	--	23,000
	Current Total Cumulative Borrowing	6,625	14,125	24,625	35,125	45,625	--	46,000
	Proposed Subsidized	4,000	6,000	<-------------- 20,000* ------------->				30,000
	Proposed Additional Unsubsidized	5,500	5,500	7,000	7,000	7,000	7,000	39,000
	Proposed Total Cumulative Borrowing	9,500	21,000	38,000	55,000	62,000	69,000	69,000
	* $10,000 annual maximum after second year until aggregate is reached
Graduate/Professional
	Year of Study	1st	2nd	3rd	4th	5th	6th	Total
	Current Subsidized	8,500	8,500	8,500	8,500	8,500	8,500	65,500^
	Current Additional Unsubsidized	10,000	10,000	10,000	10,000	10,000	10,000	#
	Current Total Cumulative Borrowing	18,500	37,000	55,500	74,000	92,500	111,000	#
	Proposed Subsidized	12,000	12,000	12,000	12,000	12,000	12,000	--
	Proposed Additional Unsubsized	25,000 per year minus amount of subsidized loan**						--
	Proposed Total Cumulative Borrowing	25,000	50,000	75,000	100,000	125,000	#	#
	^ Sum of undergrad and grad loans # Set by Regulation ** Annual Subsidized plus Unsubsidized borrowing limited to $25,000

2. Provide Origination Fee Relief for Low-Income Students

Issue: An origination fee was established as a temporary measure in 1981, yet 20 years later it is still being charged to students. This fee, which is three percent of the amount borrowed, reduces the amount of funds a student can use to help defer college costs and students are obligated to repay the entire amount borrowed after graduation.

Proposal: Congress should provide relief from this tax on education for all students, but at a minimum should target such relief to subsidized Stafford borrowers. To control costs, such relief could be phased in through annual increments.

3. Improve Repayment Options

Issue: Under federal law, student loan borrowers generally have 10 years to repay their student loans. The current repayment options do not provide for manageable monthly payments for some borrowers. This is particularly problematic when borrowers first enter the workforce.

Proposal: Offer greater initial repayment flexibility to all borrowers. To provide targeted assistance to these borrowers, Congress should enact the following:

A.	An interest-only plan. Borrowers would pay only the amount of accruing interest for two years. This plan would be available to all borrowers. The standard 10-year repayment period would begin after the interest only period and borrowers could still choose from other available repayment plans.
B.	A partial interest plan. Borrowers with high debt and modest income would pay only 50% of the interest that would otherwise accrue on the loan. The federal government would pay the remaining amount of interest. As with the interest-only plan, the repayment period would be extended two years and borrowers could choose from the full array of available repayment plans after the first two years. Higher payments could be required later in the payment period so that the government is repaid for the subsidy provided during the first two years.
C.	Extended borrower repayment. During the last reauthorization, extended repayment was made available for new FFEL borrowers with loan balances above $30,000. This concept should be expanded, with graduated repayment term levels modeled on those contained in current law for consolidation loans. Moreover, borrowers in the FFEL program should have the same flexibility that is available through the Direct Loan program’s graduated and extended repayment options.

Regardless of the repayment term a borrower selects, all borrowers should be encouraged to repay their loans early if at all possible.

4. Loan Consolidation

Issue: Loan consolidation was originally created by Congress to simplify the process of loan repayment for borrowers with multiple servicers and to help lower monthly payments for borrowers in difficult financial circumstances. The Coalition supports use of consolidation loans for those original purposes. Student loan consolidation was never intended to be a refinancing mechanism. The Coalition opposes proposals to permit consolidated loans to be refinanced because it would drain crucial federal resources needed for incoming or current students.

Proposal: To continue to permit consolidation loans to fulfill their original purposes while limiting the drain on federal student loan resources available for incoming or existing students, we propose that Congress:

	Create a consolidation interest rate structure that tracks the Stafford loan program;
	Retain the single holder rule (1);
	Close the Perkins loan consolidation loophole to prevent circumvention of the single holder rule. Perkins Loans should continue to be included in consolidation loans. However, some consolidation firms treat the school as a separate "loan holder" to get around the single holder rule. Congress needs to clarify the existing law.
	Charge a fee to consolidation borrowers, if necessary, to offset the cost of student loan improvements.

5. Loan Forgiveness

Issue: Borrowers leaving school with significant debt should have some relief if they enter lower paying, high-need career fields such as teaching in low-income areas.

Proposal: Congress should provide $1 billion in funds for loan forgiveness programs.

Cost of Coalition Proposals:

While we have attempted to tailor our proposals to make them achievable within the constraints of this year’s budget, we understand that some of them may not be possible without additional mandatory spending authority. Given the importance of higher education to our nation and its citizens, we plan to press the budget committees and the Congress for additional mandatory spending authority in next year’s budget resolution. In the meantime, we hope to work with the authorizing committees to achieve as much of our proposals as possible.

(1) The goal of the single holder rule was “to ensure the protection of borrowers from mass marketing or selective marketing of consolidation loans” (Conf. Rep. 105-750). Under the rule, a borrower who has multiple loans with a single lender who seeks to consolidate his or her loans must first seek a consolidation loan from his or her lender. If the lender does not offer consolidation loans, or does not offer such loans with income sensitive repayment terms, then the borrower may seek a consolidation loan from another lender. A borrower who has multiple loans with multiple lenders may consolidate his or her loans with any eligible lender.