This article details the proposed changes in the Aim Higher Act affecting federal student loan programs.
The House Democrats’ Higher Education Act (HEA) reauthorization bill, the Aim Higher Act (AHA), repeals loan origination fees and reduces the number of loan repayment options to two: a fixed repayment plan and an income-based repayment (IBR) plan. The fixed repayment plan would differ from the current standard repayment plan in that it would give borrowers a minimum 10-year repayment period for loan balances below $20,000, but would extend the length of repayment for larger balances, with a maximum 25-year repayment period for loan balances exceeding $40,000. The IBR plan would calculate annual payments for borrowers whose incomes are below $120,000 as 10 percent of their income that exceeds 250 percent of the federal poverty level. Borrowers with incomes above $120,000 would receive a lower percent-of-poverty line income exclusion, reduced by 5 percent per $1,000 in additional income over $120,000, meaning that payments for borrowers earning more than $170,000 would equal 10 percent of their total income. Interest accrual under the AHA for borrowers in the IBR plan would be capped at 50 percent of the original principal balance.
Under the proposal, enrollment in IBR could take place in writing, verbally, or via electronic forms of communication, and annual recertification of eligibility would be automatic, using the Department of Education’s (ED) authority granted under the bill to verify borrowers’ incomes and household size. The bill also permits ED to obtain income and household size information for borrowers who are more than 60 days delinquent on repayment, and to inform them of their loan repayment options, including estimated monthly payments based on the verified income and household data. ED would also be permitted to automatically enroll borrowers who are more than 120 days delinquent in repayment into the IBR plan. The AHA also permits the separation of joint consolidation loans.
The definition of a public service job for qualification for Public Service Loan Forgiveness (PSLF) is expanded under the AHA to include certain farm workers, as well as health care providers working in public service jobs who are prohibited by state law from being hired directly by a hospital or another health care facility.
The AHA provides a definition in law for a borrower defense to repayment to include a substantial misrepresentation or an act of omission that would give rise to a cause of action against the school under applicable state law. It also includes a provision that, upon ED’s determination that a borrower’s defense to repayment claim merits relief, the entirety of outstanding debt would be forgiven, pushing back on a recent ED policy decision to offer partial forgiveness for some former Corinthian Colleges students. ED is also instructed to create a common manual for loan servicers and debt collectors to ensure consistent policies and procedures are applied to all borrowers.
The bill removes the prohibition on making new Perkins Loans after Sept. 30, 2017, as well as the prohibition on additional appropriations for the Perkins Loan program, and establishes the Federal Direct Perkins Loan program. The bill contains provisions for institutional recovery of unreimbursed cancellations, as well as for recovery of short-term loans to the Perkins Loan fund.
The Federal Direct Perkins Loan would carry the same terms and conditions as the Federal Direct Unsubsidized Loan, but would continue to operate as a campus-based fund, with $6 billion authorized funding. The allocation formula would change significantly, with half of funds distributed to institutions based on the institutional self-help need amount, one-quarter allocated based on a low-tuition incentive amount that compares the institution’s tuition to sector averages, and one-quarter based on the institution’s percentage of Pell Grant recipients who earn degrees.
Under the AHA, refinancing would be available for Federal Family Education Loans (FFEL), Direct Loans (DL), and private education loans that were borrowed prior to July 1, 2019. Refinanced FFEL loans would become Direct Loans upon refinancing, and private education loans would fall under the newly-created Federal Direct Refinanced Private Loan program. All would have fixed interest rates set at the 2017-18 DL rates for the level of study for which the original loans were borrowed. Eligibility would be linked to income or debt-to-income ratio, and would be intended to allow refinancing for the highest-need borrowers. Federal Direct Refinanced Private Loans would not be counted toward aggregate DL borrowing limits.
Publication Date: 8/16/2018