House Republicans want to whittle the suite of eight student loan repayment plans down to two: one standard 10-year plan and one income-based plan. As it stands, people can opt to have their monthly loan payment capped to a percentage of their earnings, with the remaining balance of the debt forgiven after 20 to 25 years.
The House plan would limit loan forgiveness, raise monthly payments to 15 percent of income and eliminate the fixed number of years for repayment. But in exchange, the government would discharge any debt remaining after borrowers repay the total principal and interest they would have paid under a standard 10-year plan.
“It’s a very regressive and punitive change,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators. “The cap provides some insurance that your costs will never exceed a certain amount of money. It’s useful and worth exploring, but taking away any form of loan forgiveness is a big penalty.”
Limiting loan forgiveness would address some concerns about the cost of the program. A 2016 study by the Government Accountability Office estimated that the popular repayment plans would cost at least $108 billion for loans made from 1995 to 2017. To lower the expense, critics have called for caps on the amount of graduate student debt eligible for forgiveness.
House Republicans are also envisioning the end of loan forgiveness for college graduates who pursue careers in the public sector. The plan, much like the White House budget, would do away with Public Service Loan Forgiveness, a program that wipes away federal student debt for people in the public sector after they have made 10 years’ worth of payments.
The program, enacted in 2007 under President George W. Bush, was designed to encourage college graduates to pursue careers as social workers, teachers, public defenders or doctors in rural areas. But critics say it is a back-door subsidy for graduate school, and one that primarily helps doctors and lawyers with tremendous earning potential.
Changes to both the public sector program and income-driven plans would apply only to borrowers after June 2018, with no one currently working towards loan forgiveness affected, according to the House Committee on Education and the Workforce staff.
“With 6 million unfilled jobs and over a trillion dollars in student debt, simply reauthorizing the Higher Education Act will help no one,” said Rep. Virginia Foxx (R-N.C.), chairwoman of the House Education committee, in a statement. “A hard truth that students, families and institutions must face is that the promise of a post-secondary education is broken.”
The House plan falls in line with broader Republican objectives to streamline the federal student aid program with only one loan and one grant program, a proposal championed by Sen. Lamar Alexander (R-Tenn.), chairman of the Senate Education committee. An aide for Alexander said he hopes to have the forthcoming Senate version of the higher education legislation ready for debate and amendments in March.
The House plan would address the needs of undergraduates, graduate students and parents. Most undergraduates could borrow up to $39,000 in total in federal student loans, raising the current threshold from about $31,000. Graduate students could take out no more than $150,000 over the course of their studies, while loans made to parents would be capped at $56,250, ending the unlimited borrowing that exists for both groups.
It’s unclear what impact the loan limits would have on the federal budget. But eliminating loan forgiveness could offset some of the decline in revenue that is expected to come from the end of loan origination fees and capping the amount of money graduates and parents can borrow.
“Loans will probably be viewed as more profitable because they’d eventually get the money,” said Robert Kelchen, an assistant professor of higher education at Seton Hall University.
House Republicans would also do away with fees the federal government charges students and parents for the origination of their loans. Student loan origination fees generated $1.6 billion in revenue for the federal government in the 2016-2017 award year, and $8.1 billion over the past five years, according to a recent paper by the financial aid association.
The legislation would also end the Federal Supplemental Educational Opportunity Grant, a $732 million program that provided aid to 1.6 million students in the 2014-15 academic year. It would also wind down the Teacher Education Assistance for College and Higher Education Grant, a federal program that provides money to students willing to work in high-needs schools or teach subjects in desperate need of educators for four years. The bill calls for no new grants after June 20, 2018.
The one grant the legislation leaves in place would do more to encourage students to complete their degree on time. House Republicans are adopting an Obama-era proposal to raise the maximum Pell Grant award $300 for students who take 15 or more credits per semester in a school year. Pell is a form of federal aid for students whose families typically earn less than $60,000 a year.
House Republicans would also reform the Federal Work-Study Program by directing more money to schools where a high percentage of Pell recipients graduate. It would relax some requirements that make it difficult for schools to take advantage of the program, but would no longer allow graduate students to access Work-Study funding.