The student loan and higher education plans for the Republican majority are starting to come into focus.
We still don’t know what they will prioritize, but we do know that they plan to use the reconciliation process to avoid a Senate filibuster, and that any student loan changes would be part of much broader legislation. This was the same tactic that the Democrats used in 2010 when health care reform legislation was also used to eliminate the FFEL student loan program.
The most detailed information on their planning has come in the form of a document released by Politico that shows the various policy changes under consideration. This is perhaps the most comprehensive look into the actual changes that we could see in the coming years.
Sherpa Note: This article is a very broad overview of the many changes currently under consideration. Once more information becomes available, we will dig deeper into the details, viability, and borrower impacts. For now, I’ll quickly introduce each proposed change and provide a couple of first impressions.
Ending the Student Loan Interest Deduction
One of the proposals would end the interest deduction that many student loan borrowers claim each year. This deduction doesn’t offer much relief for borrowers, but every little bit can help at tax time.
Interestingly, there is also a proposal to make interest on auto loans tax deductible.
As a matter of public policy, tax code changes are often used to incentivize or disincentivize certain behavior. In this case, it appears Republicans are attempting to discourage student debt and to encourage borrowing money to pay for automobile purchases.
Dramatic Changes to IDR
One of the critiques of the current Income-Driven Repayment plans is that there are too many options and they are too complicated. Republicans would like to replace all the existing IDR plans with one new IDR plan.
Details on the one plan are not yet available, but we do know that it would only apply to loans originated after June 30, 2024. It isn’t clear what would happen to borrowers with some loans before and some loans after the cutoff date.
For borrowers, this information is good news and bad news. It is good news because it seems to demonstrate an understanding that the existing Master Promissory Note precludes eliminating the current IDR plans for existing borrowers. It is bad news because this new plan would likely be more expensive than some of the existing IDR plans. If the new single IDR plan offered better terms than all of the existing IDR plans, they wouldn’t have to worry about MPN-related lawsuits and could put all IDR borrowers on the same plan.
Limiting ED’s Regulatory Authority
This proposal would limit the ability of the Department of Education to issue regulations “that would increase the cost of federal student loans or that would have economically significant effects.”
Limiting the Department of Education’s ability to issue “economically significant” regulations is likely in response to the COVID-19 payment and interest pause as well as the SAVE repayment plan.
Risk-Sharing Payments from Schools
In another proposal, colleges “would be required to make annual payments, called risk-sharing payments, in order to participate in the federal student loan program.”
The idea of having colleges put some skin in the game has been a popular proposal in both parties. There seems to be some consensus that the price of education should be reflected in the price.
Where the two parties appear to disagree is in implementation. Democrats have focused their efforts on more punitive measures aimed at the schools that provide the least value to students. Republicans appear to want all schools to be treated the same in the risk-sharing endeavor.
The bad news for current students is that colleges could easily pass this cost on to their students in the form of tuition increases or borrowing fees. The good news is that Republicans want to use the money raised from this policy to issue grants to make schools more affordable.
Repealing Borrower Protection Regulations
During the Biden administration, rules were created that made it easier for borrowers who were defrauded by their school to get their loans forgiven. These rules also provided a process for borrowers who attended schools that closed to get their loans discharged. Additionally, Republicans want to remove the 90/10 rule that prohibited for-profit colleges from getting more than 90% of their revenue from federal financial aid.
Collectively, these rules exist to protect borrowers from schools that made grand promises and delivered little value to students.
PSLF Reforms
The proposal to change PSLF doesn’t offer much detail. In total, it says, “This option would allow the Committee on Education and the Workforce to make much-needed reforms to the PSLF, including limiting eligibility for the program.”
It isn’t clear how eligibility would be limited, and there isn’t a mention of who the changes would apply to.
Additionally, it is worth noting that in another section of the Republican proposals, there is discussion about eliminating the non-profit status at hospitals. For PSLF borrowers currently working at a non-profit hospital, this would be a dramatic change.
Ending Graduate PLUS and Parent PLUS Loans
The largest federal student loan balances often come as a result of Parent PLUS borrowing and Graduate PLUS borrowing. Republicans are considering closing off these programs to new borrowers starting this year, and ending the programs completely by 2028.
The argument for ending these programs is that it would save the government money each year and that it would drive the cost of college down because people would no longer be able to afford high tuition charges.
The problem is that by eliminating these programs, access to higher education becomes limited. Borrowers from wealthy families and those with parents willing and able to cosign loans would still be able to afford school, but others would be left out.
Limit Annual and Aggregate Borrowing
Here again, the proposal is short on specifics, but the idea is to lower borrowing limits to “reduce direct spending by $18.7 billion.”
Like the changes to PLUS loans, the idea is to save the government money and drive down the cost of education. For the students with family resources, it could save some money each year. For the students prevented from attending college, the change would be devastating. As for taxpayers, there would be immediate benefits, but in the long term, the policy could cost far more than it saves.
Additional proposals would eliminate interest subsidies offered to low-income students while in school and limit financial aid to schools with higher costs of attendance compared to the national average.
Finally, Republicans are considering Pell Grant reforms, including adding new grant caps and making Pell Grants available for short-term credential programs.
Tweaking Repayment Rules
Republicans are also proposing a couple of student loan repayment changes that would likely generate bipartisan support if they were offered as standalone legislation.
One change would eliminate interest capitalization on federal loans. Interest capitalization happens when the outstanding interest on the loan is added to the principal balance and borrowers start paying interest on the interest. Recently, the Department of Education adopted a policy that only capitalizes interest when required by statute.
Another change would give borrowers a second shot at student loan rehabilitation. Currently, borrowers who default on their student loans can only rehabilitate their loans once.
There are also proposals to increase taxes on university endowments, start taxing scholarship awards, eliminate the Lifetime Learning Tuition Credit, and to tax fellowships.
These changes would all increase revenue for the federal government in the short term but make it harder to pay for a college education.
Next Steps
The policy proposals under consideration will be discussed in the Republican conference, and some or all could eventually make it into future legislation.
If you strongly oppose or support any of the above proposals, now would be a great time to reach out to your elected officials, especially if they are Republicans. You can find contact information for your elected officials here.
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