House Republicans Propose Overhaul of Federal Student Loan System
House Republicans Propose Overhaul of Federal Student Loan System
On Tuesday, the House education committee’s Republicans unveiled a plan to restructure the federal student loan system. This plan is part of a larger reconciliation package and aims to reduce federal spending by over $330 billion. The proposed changes would impact various aspects of student lending, including repayment plans, Pell Grants, and loan programs for graduate and undergraduate students, as well as parental loans.
The proposal eliminates existing income-contingent repayment options, such as the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans, and the Biden administration’s SAVE Plan for new borrowers after July 1, 2026. These will be replaced with a “Standard Repayment Plan” offering fixed monthly payments over 10 to 25 years and a “Repayment Assistance Plan” basing payments on a borrower’s adjusted gross income. The Repayment Assistance Plan has a maximum repayment term of 360 payments (30 years). Borrowers with loans prior to July 1, 2026, will have access to an updated version of the old Income-Based Repayment Plan. Unpaid interest not covered by monthly payments will be waived under the Repayment Assistance Plan.
Significant changes are proposed for the Pell Grant program. The definition of full-time college attendance for maximum Pell Grant eligibility will increase to 30 credit hours per year. Students will need to be enrolled at least half-time (15 credit hours) to qualify for any Pell award. The plan also expands Pell Grant eligibility to students in short-term workforce training programs.
The Republican plan eliminates the Grad PLUS loan program for graduate students and subsidized undergraduate loans (where the government covers interest during enrollment) after July 1, 2026. Annual borrowing caps will be set based on the median cost of attendance for similar programs nationally. Aggregate borrowing limits will be $50,000 for undergraduates, $100,000 for graduate students, and $150,000 for professional programs. The Parent PLUS loan program will face an aggregate borrowing limit of $50,000, with students required to exhaust maximum unsubsidized loan options before parents can utilize Parent PLUS loans.
A novel aspect of the proposal involves holding colleges and universities accountable for student loan defaults. Institutions would be required to reimburse the federal government for a percentage of defaulted loans from their students. This percentage would be calculated based on factors such as tuition costs, student post-graduation earnings, and the institution’s completion rate. Penalties for late or missed payments could result in a college losing access to the federal student loan program.
The plan also removes existing provisions protecting borrowers in cases of school closure or instances where they believe they were misled during enrollment. Rep. Tim Walberg, the education committee’s Republican chairman, stated that the current system is “broken and littered with incentives that push tuition prices upward.” Conversely, Rep. Bobby Scott, the committee’s ranking Democrat, argued that the Republican plan would “increase costs for colleges and students” and use the resulting savings to fund tax cuts for the wealthy.
The proposal’s passage requires a simple majority in the Senate and a unified House Republican front. While it is described as having a high likelihood of passage given the current political climate, it is not guaranteed.
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