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May 23, 2007

Petri Introduces Flexible Student Loan Proposal

WASHINGTON - Student loans would be repaid through the Internal Revenue Service and would automatically be rescheduled each year to accommodate borrowers' financial ups and downs, according to a bill introduced Wednesday by Rep. Tom Petri (R-WI).

Petri said his Income-Dependent Education Assistance (IDEA) Act would eliminate defaults because payments would be deducted from borrowers' paychecks along with taxes. The loan payments would never exceed 15 percent of adjusted annual income.

"It will eliminate the problem of default. It will give people a lot more flexibility as to the kind of work they do after school," he said.

"A lot of young people would prefer to do something that gives them experience that might pay off later," Petri said. "Currently, they could get locked into fixed repayments on their student loans during their school years, and suddenly their options are reduced. This will restore those options, and it will mean that people's credit ratings will be preserved."

Petri said that he has advocated income-sensitive student loan repayment for over 20 years. "Perhaps I was ahead of my time, but over that time the technology to really makes this work has vastly improved," he said. "This is how they do student loans now in Britain and New Zealand, and it works. The climate is good now in Congress to get this through."

The IDEA Act will be one of Petri's top priorities in the higher education reauthorization bill to be considered later this year. Petri has called for comprehensive student loan reform and identifies this as an important component.


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Rep. Petri's comments as recorded for radio:

"The bill will provide a new option for students, and that is that they can have more flexible repayment, more affordable repayment for their student loans than is currently the case.

"What it provides is that after graduation students can consolidate their loans, have them collected by withholding from each paycheck through payments to the IRS, capped at no more than 15 percent of their after-school income.

"The advantages are very clear. It will eliminate the problem of default. It will give people a lot more flexibility as to the kind of work they do after school.

"A lot of young people would prefer to do something that gives them experience that might pay off later or be something that they really want to do sometime in their life. And they could get locked in to fixed repayments on their student loans during their school years, and suddenly their options are reduced. This will restore those options, and it will mean that people's credit ratings will be preserved.

"If they go into default, it can affect them for many years when the time comes to buy a house or a car or some other major financial obligation."

More on the "income-contingent" feature:

"Of course, when you get out of school it's a time of transition. People often go, for a particular period of time without earning money. And they get into default. That wouldn't happen under this legislation because your payments depend on your income.

"If you have no income, you don't have to pay that pay period on your loan. The loan is automatically rescheduled. It's not forgiven - interest would accrue. But you wouldn't be in default.

"If you do earn money, you'd have to make the payments, but the amount you make would be capped at no more than 15 percent of that paycheck. And, so, if you were doing well, you'd pay the loan off on schedule or even, if you wanted to, ahead of schedule.

"If you are doing poorly, you'd have to pay it off over a longer period of time. So, it's automatically rescheduled, depending on your circumstances

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