Leading House Republicans this month introduced a bill that would make major changes to federal student loan programs and expand Pell Grant eligibility to certain short-term programs.
House Republicans have positioned the Responsible Education Assistance through Loan (REAL) Reforms Act as an alternative to student debt cancellation proposals championed by many progressives and currently under consideration by the White House, as well as other student loan policies advanced by President Joe Biden. But, irrespective of the current political context, the bill – introduced by Education and Labor Committee ranking member Virginia Foxx (R-North Carolina) and Reps. Elise Stefanik (R-New York) and Jim Banks (R-Indiana) – addresses many of the policy issues now commonly associated with the federal loan programs.
Related article: Washington Watch: What about community college loan issues?
The REAL Reforms Act is unlikely to receive a House hearing or other legislative consideration for the remainder of this Congress. However, the bill provides insight into House Republicans’ approach to student loan and affordability issues, signals priorities for the coming year, and it could serve as a starting point for a Republican proposal to reauthorize the Higher Education Act (HEA) in the next Congress.
Expanding Pell eligibility
Of great interest to community colleges, the REAL Reforms bill has a key non-loan provision: it would expand Pell Grant eligibility to programs between 150 and 600 clock hours — the same eligibility length included in the legislatively stymied JOBS Act. Not surprisingly given its Republican sponsors, the bill makes for-profit institutions eligible for the program.
To be Pell-eligible under the proposal, programs would have to demonstrate graduation and job placement rates of at least 70%, determinations made by accreditors. Programs would also have to show that students who received federal financial aid saw an increase in post-completion earnings by at least the amount of the program’s published tuition and fees — a new concept in this area. Accreditors would have to determine this measurement, though the bill does not specify how. Presumably, the federal government would provide the earnings information.
Of note is the fact that the “Workforce Pell Grant” would be available to students who have earned a bachelor of arts degree, unlike the other federal student aid programs. This could particularly benefit many community college students.
The expansion of Pell grants to short-term programs is a longstanding priority of the American Association of Community Colleges (AACC), and its inclusion in the House Republicans’ affordability and loan reform proposal continues to reflect broad bipartisan support for the concept, with heated disagreements over the details. Policymakers on both sides of the aisle will no doubt continue to debate the specifics on program eligibility. Look for short-term Pell to be a key item for discussion in any higher education and workforce training packages in the next Congress.
Proposed loan changes
The REAL Reforms Act calls for major changes to federal loan programs. The proposed provisions focus on decreasing total student debt by both limiting the amount that students can borrow and streamlining repayment options for new borrowers.
The key policy goal of the bill is to cap the overall amount that a borrower will be required to repay at the principal loan amount, plus 10 years of interest — the amount that a student would pay under a standard 10-year repayment plan.
Borrowers using the income-driven repayment (IDR) plan would see their remaining balances forgiven at the point at which they would have repaid an amount equal to the principal loan amount plus the interest owed under a standard 10-year repayment plan. (Notably, Parent PLUS borrowers are excluded from these changes to IDR.)
Currently, borrowers in IDR are eligible to have their debt forgiven after a 20- or 25-year point of repayment, regardless of the amount that has been repaid. This policy was a feature of the PROSPER Act, which the then-GOP-controlled House Education and Workforce Committee passed in 2017.
The bill also would make several other major changes to the loan programs. It would:
- Provide additional discretion for institutions to limit borrowing amounts, including enrollment intensity, credential level, year in program of study or program of study. AACC has supported this policy as a means of promoting responsible borrowing.
- Alter loan borrowing limits. Raise graduate unsubsidized loan borrowing limits from $20,500 to $25,000, with a new $100,000 aggregate lifetime unsubsidized loan borrowing cap (a decrease of $38,500). Health professions and some other post-baccalaureate students would be particularly constrained by these borrowing limits (see Grad PLUS item below).
- Create a second opportunity for borrowers to rehabilitate defaulted loans – an item of key importance for community college student borrowers.
- Eliminate the Public Service Loan Forgiveness program for new borrowers. This program’s use has increased dramatically due to actions taken by the Biden administration. However, it faces some criticism as being poorly targeted and providing massive financial benefits to individuals who don’t have financial need.
- Eliminate the Grad PLUS program, substituting for it increased limits on postbaccalaureate borrowing as described above. Under current law, Grad PLUS covers the entire cost of attendance, regardless of the tuition level. Critics argue this policy doesn’t provide incentives for these programs to limit tuitions.
- Create a new income-based repayment (IBR) plan with a minimum monthly payment of $25 (the current IBR plan has no minimum payment) but eliminate the three-year interest subsidy.
- After July 1, 2023, this new IBR plan and the 10-year standard repayment plan would be the only options for new borrowers.
A limit ED authority
The GOP bill also includes a provision to curb executive authority over federal student loan policy. It would ban the Education Department from issuing any regulations that would “result in an increase in a subsidy cost resulting from a loan modification,” including those proposed during a negotiated-rulemaking process. The department currently has broad authority over the terms and conditions of many aspects of the loan programs, and the Biden administration has used that authority extensively.
David Baime is senior vice president for government relations at the American Association of Community Colleges (AACC).
Kathryn Gimborys is a government relations manager at AACC.