NASFAA Statement On Rep. Petri’s Bill To Move to Full Income Contingent Repayment


Contact: Beth Maglione
VP of Communications
(202) 785-6944

WASHINGTON, DC, DEC. 18, 2012 -- In an effort to reduce complexity, improve default rates, and increase the effectiveness of federal student loan subsidies, Rep. Tom Petri (WI-R) introduced the Earnings Contingent Education Loans Act of 2012 yesterday that would replace and restructure Federal Direct Student loans. The new loans would be unsubsidized and would require income-contingent repayment (ICR) for all borrowers through a system of payroll withholdings from earnings through the Internal Revenue Service (IRS), similar to federal tax withholdings. This approach would shift federal benefits from the front end (as is currently awarded through subsidized Stafford loans) to the back end (by providing relief to borrowers who need it based on their circumstances during repayment).

Federal Direct loans would continue to be made for a limited period of time to students who have already borrowed under that program, although only unsubsidized loans would be made. Parent PLUS loans would stay under the Federal Direct Loan Program. Grad PLUS loans would be folded into the new program, while retaining their credit and fee requirements.

The repayment obligation would generally be 15 percent of income above 150% of the poverty line for the borrower’s household size, as reported in exemptions on the tax return. A cap would be placed on the amount of interest that could accrue over the life of the loan, equal to 50% of the total loan amount when it entered repayment. There would be no cap placed on the number of years of repayment (that is, no forgiveness of loan balances after a specified number of years in repayment).

NASFAA President Justin Draeger offered the following statement:

"This bill takes a giant step forward in providing long-term solutions to several student loan indebtedness issues. Congressman Petri's bill would nearly eliminate student loan default, and the terrible consequences that result from it, by integrating loan repayment with employer withholdings and our tax system. This measure also provides a long-term solution to federal student loan interest rates that have been out of step with market rates in recent years. The bill also caps the total amount of interest that could ever accrue on a federal student loan and would ensure that student loan repayment remains affordable for all students by automatically enrolling them in income contingent repayment. We look forward to working with Congress on the concepts outlined in this bill in the coming months." 

For more information, Petri’s office has provided a Summary Q&A reference document. If you would like additional background or commentary from NASFAA, please email


The National Association of Student Financial Aid Administrators (NASFAA) is a nonprofit membership organization that represents approximately 20,000 financial aid professionals at 3,000 colleges, universities, and career schools across the country. Each year, financial aid professionals help more than 16 million students receive funding for postsecondary education. Based in Washington, D.C., NASFAA is the only national association with a primary focus on student aid legislation, regulatory analysis, and training for financial aid administrators. For more information, visit