Senate's budget proposal offers student loan borrowers fewer repayment options, loan limits for grad school

CNBC

4 hours ago

The U.S. Senate has released details about its version of the budget reconciliation package known as President Donald Trump's "One Big Beautiful Bill Act."
The House passed its version of the bill on May 22, which included a number of proposals to reform the current federal student loan landscape, including the elimination of existing repayment plans and new limits on federal borrowing.
The Senate's version — released by the Health, Education, Labor and Pensions committee on June 10 — keeps most of those proposals in place, but takes out other regulations, like a loan limit on undergraduate borrowers.
Critics say the bill removes important protections for vulnerable student loan borrowers, such as affordable repayment plans and recourse when students are harmed by their institution.
"While the Senate has pared back or rejected many of the most harmful changes proposed by the House, the bill still harms the lowest-income loan borrowers and students to pay for tax cuts," Sameer Gadkaree, president of The Institute for College Access & Success, said in a statement on June 11.
Proponents, however, say the bill addresses some of the major contributing factors to the student loan crisis and puts the onus on borrowers to repay their debts, rather than taxpayers.
"While [former President Joe] Biden and Democrats unfairly attempted to shift student debt onto taxpayers that chose not to go to college, Republicans are taking on the root causes of the student debt crisis to lower the cost of tuition and improve Americans' access to opportunities that set them up for success," Sen. Bill Cassidy (R-La.), who chairs the HELP committee, said in a statement on June 10.
Republicans hope to move the bill forward by July 4, but some provisions, namely cuts to Medicaid, are raising concerns about whether it will pass the Senate as is. But if the Senate's provisions remain in place, here's what it would mean for student loan borrowers.
Both the House and Senate versions of the bill aim to streamline the repayment options for federal student loan borrowers. Borrowers currently have at least three different income-driven repayment plans available, as well as the standard repayment plan, to pay back their loans on timelines ranging from 10 to 25 years.
If passed as proposed, borrowers whose loans are disbursed on or after July 1, 2026 will only have two options: a standard fixed-payment plan and a new income-driven repayment plan lawmakers have coined the Repayment Assistance Plan. Existing borrowers will be able to stay on older plans or switch into one of the new repayment plans.
The new standard repayment plan will have borrowers paying back their loans for 10 to 25 years, depending on how much they borrow. Currently, the standard repayment plan calculates monthly payments to have the debt repaid in 10 years.
RAP, the new income-driven repayment plan, will calculate monthly payments as between 1% and 10% of a borrower's discretionary income, down from the current offerings that set payments at 10%, 15% or 20% of a borrower's income, depending on the plan and when the loans were disbursed. On RAP, borrowers would be eligible to have their remaining balances forgiven after 30 years, up from the current 20 or 25 years.
The House's proposal includes a stipulation that borrowers who enroll in RAP will not be able to switch out of the plan later, but the Senate's did not include that rule.
The Senate's version of the bill maintains the House's goal of limiting the amount of loans students and their families can take out, but with different thresholds.
Under the Senate's proposal, graduate borrowers would have a lifetime borrowing limit of $100,000, and up to $200,000 for students in professional programs, like medical school. Parents would have a borrowing limit of $65,000 per undergraduate student. Undergraduate borrowers would maintain the current aggregate limit of $31,000 for dependent students and $57,500 for independent borrowers.
The House's version would impose a $50,000 lifetime borrowing limit for undergraduate students and eliminate subsidized loans that don't accrue interest while students are in school. That version also caps lifetime graduate borrowing at $100,000 or $150,000 for professional programs, and parent PLUS loans at $50,000 per parent.
Currently, borrowers have a $138,500 lifetime limit for graduate loans, including any amount borrowed for undergraduate studies. Parents can borrow up to the cost of their student's attendance after any federal aid.
Both bills eliminate grad PLUS loans, which have a higher interest rate than unsubsidized loans, but allow grad students to borrow up to their entire cost of attendance minus any federal aid.
Both versions of the bill roll back regulations put in place to help borrowers who didn't get the full benefit of the education they went into debt for.
The House and Senate proposals both eliminate borrower defense to repayment and closed school discharge rules, which allow borrowers to have their federal debt discharged if they prove they were defrauded by their academic institution or if their school wound up closing.
The House version of the bill went a step further, eliminating the 90/10 and gainful employment rules, which aim to hold schools accountable for ensuring borrowers are getting the education necessary to land well-paying jobs.
Both versions of the bill also eliminate deferment options that currently allow qualifying borrowers to pause payments when dealing with the economic hardship and unemployment.