Republicans move to overhaul student loans, including capping how much can be borrowed

Yahoo

01-05-2025

WASHINGTON — Republicans are paving the way to massively restructure the federal student loan system in an attempt to cut billions of dollars in government spending to pay for President Donald Trump's forthcoming tax bill.
The House Education and Workforce Committee advanced the Student Success and Taxpayer Savings Plan on Tuesday, one of 11 components of Republicans' massive reconciliation package aimed toward extending certain tax cuts before they expire at the end of this year. The bill passed along party lines and proposes massive changes to cut more than $330 billion in government spending.
'The fact that we are having this conversation is so well needed and long overdue,' Rep. Burgess Owens, R-Utah, who sits on the committee, told the Deseret News. 'This has been a process in which we've lost sight of the mission of why you get a degree. It's become about getting a piece of paper to say that because of the college I came from, I now deserve or am entitled to certain things. We want to make sure we focus on competency. Let's focus on skill sets. And that's the conversation we're finally having.'
The bulk of the spending cuts comes from changes to federal loan repayment programs as well as new limits on how much borrowers can receive.
The bill would eliminate income-contingent repayment plans, which allow borrowers to craft a monthly payment plan based on their income and family size. Instead, it would consolidate all existing repayment plans into only two options: the Standard Fixed Repayment Plan or the Repayment Assistance Plan.
The first option would establish fixed monthly payments over a set amount of time, typically between 10 and 25 years, depending on the outstanding loan balance.
The second would implement monthly payments based on income that would extend current forgiveness terms to 30 years, up from the current 20 or 25 years. That means borrowers would need to pay off their loans for at least five years longer before they are eligible for relief.
The proposal would establish borrowing caps for students in an attempt to prevent over-borrowing and shield taxpayers from covering the extra costs. The limits would set a maximum cap of $50,000 for undergraduate students, $100,000 for graduate students and $150,000 for professional students.
The limits would also eliminate the GradPLUS loan program for graduate students on or after July 1, 2026, with exceptions for some students depending on time of enrollment and loan amount.
It also establishes a $50,000 cap on Parent PLUS loans, which allows parents to take out loans to help pay for their child's undergraduate college education. However, it would require the student to borrow the maximum amount they can before the parent is entitled to those funds.
'Our current student loan system is broken and has left students holding over $1.6 trillion in federal student loan debt, with taxpayers estimated to lose hundreds of billions of dollars on loans disbursed over the next decade,' committee Chairman Tim Walberg, R-Mich., said in a statement.
As part of the proposal, Republicans are targeting colleges and universities to take more accountability when students over-borrow and are unable to pay off their loans.
The bill carves out language to make schools responsible for reimbursing taxpayers for part of their financial losses if students 'don't see financial value' from their degrees and can't repay their loans. The legislation would require colleges to pay off a portion of those unpaid loans based on 'how much of a return on investment the degree provided.'
'We're going to first of all make sure (schools have) some skin in the game, so that the degrees that are being sold by these colleges have some value,' Owens said. 'If they don't have some skin in the game, they have to take part in repaying it.'
The amount that schools would owe to the Treasury would be calculated based on the total price the institution charges students for a specific program as well as the earnings received by the student after they graduate — or, if they do not graduate, the completion rate of the school or program.
It's not entirely clear if there will be monetary requirements for those 'value-added earnings' for students or how federal officials will force reimbursements by colleges. Owens told the Deseret News those details have not yet been finalized but will likely be hashed out in future legislation.
One of the main components of the proposal would overturn a Biden-era 'SAVE' repayment plan, a federal-income based program intended to make student loans more affordable and prevent growing debt over time.
It's under this plan that loans are forgiven after 20 or 25 years. It also defines discretionary income as anything 225% above the poverty line, which is far more generous than the previous 150%. Republicans have long sought to repeal that program, arguing it lowers costs at the expense of taxpayers.
'We have a new sheriff in town,' Owens said. 'We now have an administration that cares about those who took out loans and is not trying to put federal programs on the back of the taxpayer.'
Democrats have decried the proposal, arguing it would raise costs for colleges while limiting students' options for loan repayment. Some have argued that the loan repayment plans would also make it more expensive for those who have already enrolled in current programs that are set to be restructured if the package passes.
'This current reconciliation plan would increase costs for colleges and students, limit students' access to quality programs … and then take the so-called 'savings' to pay for more tax cuts for the wealthy and the well-connected,' committee ranking member Rep. Bobby Scott, D-Va., said.
The proposal is set to be combined with other committees' reconciliation proposals, which will then be packaged as one massive bill to be passed by the House later this year. GOP leaders are hoping to get the full package through the House by the end of May, an ambitious timeline that could hit some snags due to lingering policy disagreements.