Hanging in the Balance: Which Direction Will Student Loan Reform Take in the 118th Congress


With less than a week left until the midterm elections, tensions are high on Capitol Hill as the razor-thin majorities in both chambers hang in the balance. A microcosm of the different directions Congress can take based on who wins the majority in the House can be seen in the race for the gavel of the House Committee on Education and Labor. With diametrically opposed beliefs on the role of the federal government in higher education, Chairman Bobby Scott (D-VA) and Ranking Member Virginia Foxx (R-NC) both recently introduced competing bills that would transform the current student loan system and set the tone for their respective visions for the committee should they win the gavel next congress. 

LOAN Act  

Chairman Bobby Scott, along with Higher Education and Workforce Investment Subcommittee Chair Frederica Wilson (D-FL), introduced the Lowering Obstacles to Achieve Now (LOAN) Act which would significantly increase the Pell Grant, improve the Public Service Loan Forgiveness (PSLF) program, and make student loans more affordable. 

Under the LOAN Act, the Pell Grant would increase to $9,000 for the 2024-2025 school year and double to $13,000 over the next five years. The bill would move the full Pell Grant to mandatory funding and index the maximum award to inflation to maintain its purchasing power. In addition to funding changes the bill also makes changes to eligibility by allowing Dreamer students to be Pell eligible, increasing the number of semesters students can receive Pell from 12 semester to 18 semesters, and allowing graduate students to use any remaining Pell eligibility to help pay for their graduate studies.  

Several key provisions of the Biden Administration's PSLF waiver would be codified by the LOAN Act.  The bill would change the requirement that borrowers must make 120 on-time payments and reduce it to 96 on-time payments. Borrowers would no longer be required to be employed in public service jobs at the time of applying for forgiveness if they made their required payments while working for eligible employers. The bill would also allow specific types of forbearances and deferments to count towards forgiveness as qualifying payments. 

To tackle the student loan crisis, the LOAN Act would tie the interest rates for all new Federal student loans, defined as any loan taken out on or after July 1, 2023, to the 10-year Treasury note. It would also eliminate all add-on percentages that currently exist, lower the percentage points, and implement a 5 percent interest rate cap for all federal student loans. Borrowers with existing loans, both federal and private, would be allowed to refinance their existing loans for the new interest rates. The bill also includes several sections that would give the Secretary of Education the authority to obtain a defaulted borrower’s income and family size information. This would allow the Department to automatically place defaulted borrowers into the most affordable income driven repayment plan and remove the burden from borrowers.   

REAL Reforms Act  

On the other side of the aisle, Ranking Member Foxx, along with House Republican Conference Chair Elise Stefanik (R-NY), and Republican Study Committee Chairman Jim Banks (R-IN) introduced the Responsible Education Assistance through Loan (REAL) Reforms Act. The bill is a response to the Biden Administration’s recent actions on the federal student loan program such as the one-time debt relief, and PSLF limited waiver. However,  it also serves as a marker of  the direction a Republican majority in the House could take when it comes to higher education.  

The bill significantly alters the student loan program, limiting the scope of the Department of Education’s ability to make changes and overhauls how loans are repaid and forgiven. It directs the Secretary of Education to confirm that any new rules or executive actions issued related to the student loan program could not increase costs to the federal government and prohibits any future regulations that do not meet this threshold. This effectively bars the Secretary from implementing any waivers to federal loans.  

For new loans starting July 1, 2023, the bill establishes two repayment plans: a standard 10-year repayment plan, and an income-based repayment plan in which borrowers must pay 15% of their discretionary income, with a $25 minimum payment requirement. These new plans eliminate negative amortization by including a cap on interest accrued beyond what a borrower would have paid in a standard 10-year repayment plan. It allows existing borrowers to also benefit from this interest cap and discharges any remaining balances for those who already met the cap threshold. This policy would apply to both Federal Family Education Loans (FFEL) and Direct Loans. With these changes, current and future borrowers would have their loans forgiven only after they have paid the equivalent of their balance plus 10 years' worth of interest, rather than after 10 or 25 years, as is the current policy.   

Beyond the repayment plan modifications, the bill makes drastic changes to the student loan program: it eliminates GRAD Plus loans, changes the limits on graduate borrowing, allows borrowers to go through loan rehabilitation twice instead of once, and gives institutions the discretion to limit borrowing based on enrollment intensity, expected income resulting from the program completion, and credential level, among other factors.  The institutional discretion provision has been a priority for ACCT for many years, with community colleges identifying this policy change as a way to better support and advice students. The proposal also eliminates the Public Service Loan Forgiveness (PSLF) program for new borrowers and statutorily sets the only allowable options for deferment and forbearance. 

One item of particular interest to community colleges included in the REAL Reforms Act is the authorization of “Workforce Pell Grants” - an expansion of Pell grant eligibility to short-term workforce programs. This has been a top priority for community colleges for several years and came really close to becoming law in this Congress with bipartisan language that moved in the American COMPLETES Act but was ultimately left out in the Conference Committee process.    

Where the Two Parties Meet, An Opportunity for Common Ground?  

Based on what House education leadership from both parties have proposed, it’s clear they both agree that our federal loan system is in need of substantial reform. There is even agreement on certain  policy proposals, such as the elimination of interest capitalization, which is included in both bills.  Interest capitalization refers to unpaid interest being added to the principal amount of loans, thus growing the loan balance and making the loan much more expensive and harder to pay for borrowers. However, this is the only area of consensus. Both parties take very different approaches to addressing the same issues, and thanks to these bills, we now have some insight into what the next congress may hold. The question of which proposal will be at the forefront of the House Committee on Education and Labor’s legislative agenda for the 118th Congress remains to be seen. We will have a clearer picture next week when the election results have been finalized.     

Rosario Durán is the Senior Government Relations Associate at ACCT

José Miranda is the Director of Government Relations at ACCT 

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