New Interest-Free Loan Repayment Policy Advances Equity

Karin McElwain-WestNews

Students awarded interest-free loans in 2017

The Scholarship Foundation has made an historic policy change to more closely align its interest-free loan repayment policy with its commitment to economic and racial equity. Beginning with the graduating class of 2021 and phasing in as future classes graduate, the new policy creates individualized repayment plans based on the borrower’s anticipated earnings and total balance owed. The result will be lower expected monthly payments for most borrowers. The expected monthly payment may increase for some, but their loan will be completely repaid in fewer months.

The policy change comes at a time when the nation is wrestling with the implications of a record $1.71 trillion in student loan debt, second only to mortgage debt and higher than both credit card and auto loan debt (Forbes, 2/20/21). In response to the economic upheaval of the COVID pandemic, payments on most federal student loans have been suspended since March 2020, and borrowers and policy makers are calling for lasting solutions to address the national student debt crisis. Proposals include forgiving some federal student debt, streamlining income-based repayment plans, enacting college cost control measures, and expanding the federal income-based Pell Grant. The revised Scholarship Foundation repayment policy is the result of a two-year board and staff study of Scholarship Foundation loan repayment data and echoes founder Meta Bettman’s assertion in 1926 that higher education is a matter of public economy and should not be limited to those with private economic means.

For as long as anyone can remember, all Scholarship Foundation borrowers have been expected to repay their interest-free loans within 60 months, following a 12-month grace period upon graduation. In recent years, this timeframe has become more difficult for many borrowers due to the increase in total loans needed to meet the rising cost of higher education, as well as stagnant wage growth. In April 2021, the Foundation’s Board of Directors voted to adopt the new policy, changing repayment expectations for future graduates. Repayment schedules and monthly payment amounts will now be calculated using anticipated earnings data published for each borrower’s degree and school, deducting a standard living allowance, and then expecting a monthly payment of 15% of remaining anticipated discretionary income. Under the new policy, payments will be scheduled over the number of months required to repay in full, however long that may be.

All graduates will continue to receive a one-year grace period after graduation before repayment begins. Borrowers who do not earn a degree will still be expected to begin repaying immediately unless they provide proof of enrollment. Any borrower can request consideration for hardship-based deferral or reduced payments.

The Foundation’s new repayment policy change will help borrowers gain more control over their long-term financial well-being. As Program Committee Chair Heidi Veron stated, “The main goal of the policy is to do right by our students.”