Republicans Propose “Alternative” to Student Debt Forgiveness

• The bill would eliminate the Public Service Loan Forgiveness (PSLF) program.
• It would also eliminate interest capitalization in student loans so that loan balances wouldn’t balloon.
• Borrower advocates offered concern and support for specific portions of the bill.

As millions of borrowers wait to see if President Joe Biden will cancel billions in federal student loan debt, Republican leaders are offering their own far-reaching proposal to overhaul student debt repayment and forgiveness programs.

Three Republicans in the U.S. House of Representatives, led by Virginia Foxx of North Carolina, last week announced a plan to introduce the Responsible Education Assistance through Loan (REAL) Reforms Act. Billed as an alternative to President Joe Biden’s rumored blanked forgiveness plan, the proposal would eliminate most forgiveness programs and place strict caps on how much money graduate students can borrow.

Borrower advocacy groups, including the National Association of Student Aid Administrators (NASFAA), opposed the above changes. However, some parts of the bill earned the group’s support.

Mainly, the REAL Reforms Act would also eliminate interest capitalization, which means those on income-driven repayment (IDR) plans would no longer see their loan balances balloon over decades. NASFAA also voiced support for expanding the Pell Grant program to cover short-term job training programs.

The REAL Reforms Act is all but certain to fail with the current House makeup, but it may serve as a blueprint for future Republican platforms. Democratic Rep. Robert Scott of Virginia, chairman of the House Committee on Education and Labor, already voiced opposition to the bill.

“This proposal … would make student loans more expensive to obtain and harder to repay,” he said in a statement. “Upon review, the Republican REAL Reform Act would have the opposite effect of the purpose of the student loan system and the Higher Education Act of 1965.”

Here’s what the new Republican proposal would do:

Massive Changes for IDR

There are currently four IDR plans for low-income borrowers to choose from, with a fifth in the works from the Biden administration.

The REAL Reforms Act, however, would create just one IDR option for borrowers. It would also inhibit the Department of Education’s (ED) ability to finish creating a new IDR plan, which Foxx said “is expected to be far more generous than those currently on the books.”

Ironically, negotiators rejected ED’s proposed IDR plan in December because it wasn’t generous enough.

“Upon review, the Republican REAL Reform Act would have the opposite effect of the purpose of the student loan system and the Higher Education Act of 1965.”
— Robert Scott, Virginia Democratic Representative

Perhaps the most substantial change for IDR in the REAL Reforms Act is eliminating the timeline for forgiveness.

Currently, borrowers on an IDR plan are eligible for complete cancellation of their loan after 20-25 years of payments that can be as low as $0 per month. The REAL Reforms Act would eliminate ED's ability to discharge the loan after this period. Instead, borrowers would only be free from the debt once they fully repay it.

The bill would also eliminate the possibility of $0 monthly payments. The new income-based repayment (IBR) plan proposed in the REAL Reforms Act would set a $25 monthly payment minimum.

Under this proposal, however, borrowers on IDR plans wouldn’t see their balances balloon due to interest accumulation, according to the bill. Interest would stop accruing after 10 years, which is the length of a standard repayment period.

These changes would only impact loans made after July 1, 2023, according to the bill’s text. The changes also exclude Parent PLUS loans.

PSLF Gets the Ax

The PSLF program incentivizes borrowers to enter nonprofit and government sectors. As a reward for working these jobs, borrowers are eligible for complete loan cancellation after 10 years of repayment.

However, some Republicans have taken issue with the program, saying it benefits high-income graduate borrowers, like doctors who work at nonprofit hospitals.

In her statement announcing the REAL Reforms Act, Foxx called the program “costly and regressive.”

The REAL Reforms Act eliminates the PSLF program for new borrowers. Those with loans made before July 1, 2023 will not be impacted. The act, if passed, would not affect students enrolled in a program by June 30, 2023, according to the bill’s text.

New Limits for Graduate Borrowing

With the REAL Reforms Act, those attending graduate schools would be capped at what they can borrow through federal loan programs. The lawmakers proposing the bill say this cap will help control the ever-increasing cost of graduate school.

According to the bill, borrowers won’t be able to take out more than $25,000 annually in federal loans. They also cannot borrow more than $100,000 in aggregate loans for their program.

“Currently, borrowers on an IDR plan are eligible for complete cancellation of their loan after 20-25 years of payments that can be as low as $0 per month. The REAL Reforms Act would eliminate ED's ability to discharge the loan after this period.”

Additionally, the REAL Reforms Act eliminates the Grad PLUS loan program. Grad PLUS loan borrowers must pass a standard credit check, unlike Stafford loans.

Limits on the Powers of ED

In addition to making sweeping changes to loan programs, the REAL Reforms Act would also restrict the Department of Education’s ability to make future changes.

Any ED Secretary would not be allowed to issue new regulations — whether through negotiated rulemaking or other means — that would “result in an increase in a subsidy cost resulting from a loan modification.”

Additionally, the department may not issue regulations deemed “economically significant.” The bill defines “economically significant” as any change that will have an annual effect on the economy of $100 million. It also says actions that will adversely affect the economy “in a material way” would be banned.

This portion of the proposed act extends to executive actions, too.

Pell Grant Expansion Included

The REAL Reforms Act includes the latest attempt by Congress to expand Pell Grant eligibility to short-term workforce development programs.

Pell Grants help nearly 7 million low- and middle-income students afford college each year. They only apply to traditional college programs, but lawmakers have sought to expand the grant program to job training programs through various means.

The REAL Reforms Act states qualifying programs would need to offer at least 150 clock hours to students for a minimum of eight weeks. The education provided must align with in-demand industry sectors. The programs must also have completion and job placement rates of at least 70%, all while netting graduates' salary increases that are greater or equal to the program's cost.

The Workforce Pell Grant program would begin on July 1, 2023.

This proposal closely mirrors an amendment included in the Innovation and Competition Act. Rep. Andy Levin, a Democrat representing Michigan, added Pell Grant expansion as an amendment in March. The Innovation and Competition Act was reworked into the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act without Pell Grant expansion.