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Forbes
30-04-2025
- Business
- Forbes
What's In House Republicans' Student Loan Overhaul
UNITED STATES - APRIL 29: Chairman Rep. Tim Walberg, R-Mich. gavels the House Educaiton Committee to ... More order for the markup of the Fiscal 2025 Budget Resolution on Tuesday, April 29, 2025. (Bill Clark/CQ-Roll Call, Inc via Getty Images) House Republicans have introduced a comprehensive student loan overhaul as part of the broader budget reconciliation process. Known as the 'Student Success and Taxpayer Savings Plan,' the package of reforms aims to save hundreds of billions of dollars through new student loan limits, changes to the repayment system, and policies to hold colleges accountable for their outcomes. If enacted, the proposals would also prevent negative amortization and discourage colleges from loading students up with excessive debt. Because Republicans will attach these reforms to a budget reconciliation bill that also advances other Republican priorities like extending the 2017 tax cuts, the package has a good chance of passing the House of Representatives. But the House still needs to work out a compromise with the Senate, where lawmakers have proposed their own set of student loan reforms that differ on some points. However, the policies in the House package stand a better chance of becoming law than any major higher education reform proposal we've seen in a long time. The student loan changes fall into three categories: loan limits, repayment plan changes, and accountability for colleges. Let's look at each in turn. Loan limits The caps on graduate and parent borrowing are long overdue. Study after study has shown that colleges exploit these unlimited loans to hike tuition. Universities have used graduate loans as a cash cow to finance expensive master's degree programs of dubious value, while many schools have foisted tens of thousands of dollars in parent loans on low-income families. The new aggregate loan limits will help rein in these predatory practices, though they remain rather high. The proposal also gives dependent undergraduate students more room to borrow. Higher undergraduate loan limits may increase aggregate borrowing, and could affect tuition prices, though the proposed accountability policies should mitigate this (more on that below). While lower loan limits might have been preferable, the proposed maximums are a good start. Changes to repayment plans The new repayment plan is earthshaking. For borrowers who make on-time payments, RAP ends the phenomenon of rising balances because payments are insufficient to cover interest. Such negative amortization has been the Achilles heel of current income-driven repayment plans, wherein three-quarters of borrowers see their balances rise over time, according to the Congressional Budget Office. RAP guarantees that borrowers will pay down principal—by at least $50 per month if they keep up with payments—and most borrowers will retire their loans faster than they would under current plans. We shouldn't underrate the psychological benefits of a fast payoff. Borrowers who see their balances consistently drop, month after month, will be more willing to remain engaged with their loans. The simplification of repayment options is also welcome, as is the move to block the Education Department from creating new plans. Borrowers ought to have certainty going forward. The government should lay out repayment options and stick with them. Moreover, taxpayers will save money in the long run if the executive branch can't create generous new repayment plans to win favor with borrowers. Accountability for colleges While RAP protects students whose earnings aren't sufficient to pay down their debts, the House proposal also rightly asks colleges to share some of the financial burden. Such 'risk-sharing' will help offset some of the costs of RAP. More consequentially, it will discourage schools from loading students up with debt they can't afford. The higher the debt, the higher the interest, and the likelier it is that the student will require an interest waiver that the college must help pay for. This is the keystone of the proposal in my view. Changes to loan origination and repayment will have limited impact if colleges themselves don't have incentives to hold debt to reasonable levels. Risk-sharing payments are unlikely to be ruinous for most colleges—the amounts we're talking about are relatively low—but they're nonetheless direct financial encouragement for colleges to make necessary changes. There's no excuse not to reduce debt: the bill gives colleges the power to set lower loan limits if they so choose. The PROMISE Grant is also welcome as a carrot to accompany the risk-sharing stick. My analysis of a similar proposal from last year shows that community colleges with a technical or vocational focus are most likely to benefit. The new grants could be an extra inducement for these schools to offer new programs in high-demand fields, as well as give schools the financial capacity to expand. A new way forward for student loans The House proposal is a three-front attack on the student loan monster. Loan limits aim to ensure debt levels are reasonable. The new repayment plan will prevent rising balances. Accountability for colleges will ensure the debts they compel students to take on are justified based on outcomes. If passed, the result of this policy mix will be a saner and more sustainable student loan system.
Forbes
29-04-2025
- Business
- Forbes
Republicans Advance Student Loan Overhaul With New Pell Grant Rules, Fewer Repayment Options—Here's What To Know
Republicans with the Education and Workforce Committee voted to advance an education reform measure Tuesday, potentially sending to the GOP-controlled House a proposal that looks to eliminate some student loan repayment plans, place limits on how much federal money students can borrow and make eligibility changes for Pell Grants. Chairman Rep. Tim Walberg, R-Mich. gavels the House Education Committee to order for the markup of ... More the Fiscal 2025 Budget Resolution on Tuesday, April 29, 2025. (Bill Clark/CQ-Roll Call, Inc via Getty Images) The measure, which has been dubbed the Student Success and Taxpayer Savings Plan, was revealed Monday by Rep. Tim Walberg, R-Mich., who claimed the legislation would save the government over $330 billion and reduce the federal deficit. Walberg said the measure will better serve Americans by 'strengthening accountability for students and taxpayers, streamlining student loan options, and simplifying student loan repayment.' The proposal passed the committee in a 21-14 party-line vote and will go to the Budget Committee before being considered in the House. Get Forbes Breaking News Text Alerts: We're launching text message alerts so you'll always know the biggest stories shaping the day's headlines. Text 'Alerts' to (201) 335-0739 or sign up here. Pell Grants, which provide financial aid to lower-income students and were awarded to 31.6% of undergraduate students in the 2022-2023 school year, will become less accessible. The plan looks to change 'full-time' student Pell eligibility from 12 semester hours each academic year to 30 semester hours. Students enrolled less than half-time (six credits per semester) under the plan will also be ineligible for the Pell Grant. New borrowing limits on federal loans will also be implemented under the plan, which would introduce a $50,000 limit for undergraduate students, a $100,000 limit for graduate students and a $150,000 limit for students seeking professional degrees (e.g. doctorates and juris doctors). Under the measure, parents could only take out federal loans if their child maxes out their borrowing limit and still has remaining costs. The plan would limit student loan repayment plans to two options—down from the seven borrowers have as of now. One option is a tiered repayment plan that makes it so students with less than $25,000 in federal student loan debt would repay their debt for no more than 10 years. Students with $25,000 to $50,000 in debt would repay the debt for no more than 15 years, while students with $50,000 to $100,000 would repay for no more than 20 years. Those with over $100,000 in debt would repay for no more than 30 years. The other option is an income-driven repayment plan based on borrowers' total adjusted gross income. Graduate students would lose access to the Plus loan program under the measure, which also seeks to remove subsidized loans that allow undergraduate students' interest to be paid by the government while they are enrolled in school. Jessica Thompson, senior vice president at the Institute for College Access & Success, told The Washington Post, 'Across the board, they are making repayment significantly more expensive and more difficult,' adding the change 'could reduce the number of people who enroll.' The Trump administration, which is looking to move student loans to the Small Business Administration, has sought to reverse the relief given to student loan borrowers by former President Joe Biden, who forgave over 5 million federal student loan borrowers a total of $183.6 billion. The Trump administration announced last week that student loan collections will resume on defaulted student loans starting May 5. The types of loans included in the resumption are Federal Family Education Loans, Direct Loans, Perkins Loans and more. Over 5 million student loan borrowers are in default on their loans. Defaulted loans have not been collected since March 2020, when the COVID-19 pandemic began in the United States. Trump Admin Resumes Defaulted Student Loan Collections May 5—Impacting Millions Of Borrowers (Forbes) Trump's Presidency And Student Loans: What Move To Small Business Administration Means For Borrowers (Forbes)
Forbes
29-04-2025
- Business
- Forbes
How The Republican Student Loan Plan Compares To SAVE And IBR
UNITED STATES - APRIL 29: Chairman Rep. Tim Walberg, R-Mich. gavels the House Educaiton Committee to ... More order for the markup of the Fiscal 2025 Budget Resolution on Tuesday, April 29, 2025. (Bill Clark/CQ-Roll Call, Inc via Getty Images) Republican lawmakers have proposed a massive overhaul of the student loan system, both in how families will pay for college, and how borrowers will repay their student loans. The key student loan repayment proposal involves reducing the number of repayment plan options to two: a standard fully-amortized plan and an income-based repayment plan dubbed the 'Repayment Assistance Plan' (RAP). Designed with a flat income-percentage model and child-based deductions, RAP would replace existing income-driven repayment plans for new borrowers. The legislation also phases out forgiveness after 20 or 25 years for a 30-year timeline, with interest and principal subsidies to prevent runaway balances. However, in side-by-side comparisons, RAP often leads to higher total payments, especially for low-income borrowers. While the SAVE plan is likely dead due to court injunctions, it would have offered lower monthly bills and faster forgiveness, particularly for those with smaller loans or incomes near the poverty line. Even compared to the existing IBR Plan, the RAP is not a compelling alternative. It's important note that the RAP Plan, and the new standard repayment plan, would only go into effect for loans originated after July 1, 2026. So existing borrowers would likely keep their plans, with the exception of those in SAVE - who will likely have to choose an eligible repayment plan when the forbearance is over. It's also important to note that this is just the main proposal right now. This could change before it's signed into law. Here's a look at how the RAP compares. There are two new repayment plan options: the standard plan, and the RAP. The standard plan would have equal monthly payments that would fully pay off your loan over a set period of time. That time period would be based on the loan amount: In some cases, especially for higher income/high loan balance borrowers, this plan may be a better option that the RAP. The RAP calculates your monthly student loan payment based on your Adjusted Gross Income, with a subtraction of $50 for each child you have. It has a minimum monthly payment of $10 per month. Here's how your monthly payment is calculated, depending on your AGI. First, take a percentage of your annual AGI (with a flat $120 per year if your AGI is less than $10,000): Then, you divide the applicable base payment by 12 (to convert it to a monthly amount). And if you have children. you can subtract $50 for each dependent child. If the result of this calculation is less than $10, your minimum $10 payment applies. However, there is no negative amortization with the RAP. So, if your payment doesn't fully cover the interest, it's waived each month. Furthermore, there is a principal reduction feature to help borrowers make progress on their loans. If your payment reduces your principal balance by less than $50, the government adds an extra reduction to your principal, up to $50 or your payment amount (whichever is less). So, no matter what, your loan balance will not grow, and your principal balance will decrease by $50/mo. To assess how RAP performs, four borrower scenarios illustrate the differences across monthly payments, forgiveness timelines, and total repayment. We included the SAVE plan in the comparison, because although it's unavailable, it was the Biden Administration's attempt at changing student loan repayment and so it's useful to see how it would have compared. It's important to note that these estimates assume the same income over the repayment period. In reality, most borrowers will see their incomes increase over time, both increasing their potential loan payment, and increasing the likelihood of paying off the loan. AGI: $25,000 Children: 2 Loan balance: $30,000 RAP: $10/month, $3,600 total over 30 years IBR/SAVE: $0/month, $0 total over 20–25 years Here, RAP imposes mandatory payments where IBR and SAVE do not. Despite RAP's interest and principal subsidies, the $10 floor multiplies over three decades. Borrowers on SAVE not only avoid monthly payments, but also benefit from full interest subsidies and earlier forgiveness. It's important to note that if this borrower was going for Public Service Loan Forgiveness (PSLF), all plans would have provided loan forgiveness after 10 years. But RAP would have still be the costliest due to the $10 minimum payment. AGI: $60,000 Loan balance: $30,000 RAP: $250/month, paid off in 20 years, $60,000 total IBR (new): $311.75/month, paid off in 13 years, $50,191 total SAVE: $217.63/month, paid off in 27 years, $70,512 total In this case, all plans eventually repay the loan. SAVE would have offered the lowest monthly bill, but the longest repayment period. IBR has the highest monthly burden but results in the lowest overall cost. RAP falls between the two. Again, all of these plans are PSLF eligible, and for PSLF borrowers, the RAP would be the better choice since SAVE is no longer an option. AGI: $80,000 Children: 2 Loan balance: $80,000 RAP: $366.67/month, $132,001 over 30 years New Standard (20-Year): $527.52/mo, $126,604.80 over 20 years IBR (new): $343.92/month, $82,541 over 20 years SAVE: $182.54/month, $43,810 over 20 years Here, RAP's flat-rate formula requires higher payments and a longer timeline, even as interest subsidies limit negative amortization. While the payment is close to the IBR payment, the amount paid over the life of the loan would have been significantly less due to the shorter time period. The SAVE plan would have been the most affordable by a wide margin due to its generous income exemption and earlier forgiveness. AGI: $180,000 Children: 1 Loan balance: $200,000 RAP: $1,450/month, paid off in 27 years, $469,800 total New Standard (25-Year): $1,167.60/mo, $350,280 over 25 years IBR (new): $1,244.50/month, $298,680 over 20 years (with forgiveness) SAVE: $1,116.75/month, $268,020 over 20 years (with forgiveness) While all plans prevent negative amortization, RAP stands out for its high total cost. Despite paying off the loan without forgiveness, RAP's extended timeline and high flat payment result in the largest overall burden. In this case, the new standard plan has the lowest monthly payment (excluding SAVE). It's important to note that you would have paid less under IBR, even with a higher monthly payment, due to the longer repayment term of RAP. However, since the standard plan is not an PSLF eligible plan, for borrowers pursuing PSLF would be stuck in the RAP at higher monthly payments, but a shorter 10 year loan timeframe. RAP's 30-year forgiveness window is a key policy difference and a major source of higher total costs for borrowers. Unlike SAVE, which would have forgiven small balances in as little as 10 years, RAP stretches out payments even when the monthly amount is minimal. In the first example, a borrower paying just $10 per month under RAP ends up contributing $3,600 over 30 years, despite never earning enough to pay more. Under SAVE or IBR, that same borrower would pay nothing. In higher-income cases, such as the borrower earning $180,000, the forgiveness period may not matter. RAP's required payment is large enough to fully repay the debt within 27 years. Yet, even in these cases, the total repayment is higher than it would have been under SAVE or IBR due to the larger monthly obligation. RAP's design abandons discretionary income formulas, replacing them with a flat percentage of AGI that rises with earnings. Child deductions lower payments, but don't eliminate them. While it may help for some borrowers, it's also more complex to calculate in many ways. The plan's interest subsidies and principal payments help manage balances, but the extended term means borrowers will likely pay more over time unless their income is high enough to repay the debt before the 30-year mark. Current borrowers should retain access to IBR, depending on legislative outcomes. But for new borrowers starting in the fall of 2026, RAP could become the default, along with the new standard plans.
