A key Republican lawmaker suggested this week that GOP priorities on student loans and higher education, including a repeal of time-based student loan forgiveness under income-driven repayment plans, could be included in an upcoming reconciliation bill early next year.
With Republicans set to control the White House and both chambers of Congress in January (albeit with narrow majorities), top lawmakers are preparing to use the budget reconciliation process to bypass the Senate filibuster, which typically requires 60 votes for legislation to advance. Republicans will hold 53 seats in in the Senate next year. By using reconciliation, Republicans would need only a simply majority to pass budget-related legislation. Top GOP lawmakers have suggested that at a minimum, the first reconciliation bill would include an extension of tax cuts associated with the 2017 Tax Cuts and Jobs Act, which was passed through the same process during the first Trump administration. But a top Republican this week indicated that student loan forgiveness reform could be included, as well.
“I still have hope that we’ll be able to pass it in this session of Congress,” said Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) on Fox Business on Wednesday. But if it doesn’t pass this session, the bill “could go into the reconciliation and be a part of the tax cuts extension,” she said.
Proposal Would End Time-Based Student Loan Forgiveness And Current IDR Plans For New Borrowers
Foxx’s bill, the College Cost Reduction Act, would eliminate current income-driven repayment, or IDR plans, for new borrowers. IDR plans use a formula applied to a borrower’s income and family size. Under current law, any remaining balance would qualify for student loan forgiveness after 20 or 25 years in repayment under these plans. IDR plans include Income-Contingent Repayment, Income-Based Repayment, Pay As You Earn, and Revised Pay As You Earn, which subsequently became the SAVE plan.
Under the College Cost Reduction Act, federal student loan repayment options would be narrowed down to just two: a Standard plan, and a new IDR plan called the “Repayment Assistance Plan.” This new plan would be based on income just like existing IDR plans, and would use a formula similar to the PAYE and REPAYE plans. However, it would eliminate student loan forgiveness after 20 or 25 years in repayment. Instead, borrowers would only qualify for loan forgiveness once they have repaid “the total amount of principal and interest that the borrower would have repaid under a standard repayment plan.” Some lower-income borrowers or those with high balances may never pay that amount, which could lead to some people being trapped in debt for their entire lives.
Under the current version of the bill, the changes would apply to “All loans made… on or after July 1, 2024.” This suggests that borrowers already in repayment would be able to maintain access to existing IDR plans.
Student Loan Forgiveness Through Existing IDR Plans Under Separate Threat
Even if current borrowers could continue accessing existing IDR plans, significant threats loom.
The 8th Circuit Court of Appeals, which is handling a legal challenge over President Biden’s SAVE plan, blocked the Education Department from implementing the SAVE plan in August, forcing millions of borrowers into a forbearance. The court appears ready to strike down the SAVE plan entirely.
Depending on the scope of the 8th Circuit’s ruling, the ICR and PAYE plans could also be impacted, as these plans were created using the same regulatory process as the SAVE plan. Even though decades of regulations and bipartisan Education Department guidance reflected that these plans would result in loan forgiveness after 20 or 25 years, there is a distinct possibility that the appeals court could disallow loan forgiveness under these plans. The IBR plan, which was separately created by Congress, is not at risk from this legal challenge.
While the Trump administration has not expressly indicated what it intends to do with respect to IDR loan forgiveness, the administration could simply wait for the 8th Circuit to rule, and then not appeal that ruling (which the Biden administration had been expected to do). This would effectively allow the 8th Circuit to be the final word on IDR loan forgiveness.
Other Elements Of Proposal Would Impact Origination And Other Student Loan Forgiveness Programs
The elimination of time-based IDR student loan forgiveness is not the only item in the GOP-sponsored College Cost Reduction Act. Other provisions, which some borrower advocates would support, include:
- The elimination of the Parent PLUS and Graduate PLUS loan programs. Some advocates support this move, as these loans tend to have higher interest rates and can leave parents and older borrowers stuck in significant debt. However, other advocates are concerned that eliminating these programs would force borrowers to rely on riskier private student loans that don’t qualify for IDR or loan forgiveness and typically have inflexible repayment terms.
- A second chance for borrowers in default on their student loans to get back into good standing through the federal student loan rehabilitation program.
- An interest subsidy for the new IDR plan “for each month for which a borrower’ s aggregate monthly payment… is insufficient to pay the total amount of interest that accrues on a loan for the month,” as well as the ability for payments to go directly towards principal in certain circumstances.
- The elimination of most instances of interest capitalization.
- A repeal of the Biden administration’s “gainful employment,” Borrower Defense to Repayment, and Closed School Discharge regulations, and a limitation on the ability of future presidential administration to draft new regulations expanding student loan forgiveness initiatives.
It is unclear at this juncture which, if any, of these provisions (including changes to student loan forgiveness) may make it into the upcoming budget reconciliation bill, as Republican lawmakers are still hammering out the details. But many Republicans in Congress may see this as an opportunity to “reign in” Biden-era student loan forgiveness initiatives.
“This is not forgiving loans,” said Foxx. “This is transferring the cost of those loans to people who never took them out, never darkened the door of a college. It is an obscene effort.”
Borrowers could have more information in just a matter of weeks.