Republican members of the House Committee on Education and Labor recently introduced the Responsible Education Assistance Through Loan (REAL) Reforms Act, a bill to reform several federal student loan provisions, extend Pell Grant eligibility to students enrolled in short-term programs, and limit the secretary of education’s authority related to negotiated rulemaking, executive orders, and the Higher Education Relief Opportunities for Students (HEROES) Act of 2003.
Several provisions of the bill reflect sentiments expressed in a recent letter from Rep. Virginia Foxx (R-N.C.), ranking member of the House Committee on Education and Labor, which was likely fueled by a recent Government Accountability Office (GAO) report that found 39% of the increase in the Department of Education’s (ED) cost estimates for the federal student loan programs is attributable to programmatic changes including the student loan interest moratorium and payment pause.
The loan reforms in the bill are a mixed bag for borrowers. While eliminating statutory interest capitalization events and adding a new loan cancellation provision for borrowers repaying under income-driven repayment (IDR) plans, it also eliminates the Grad PLUS and Public Service Loan Forgiveness (PSLF) programs.
Under the proposal, borrowers (excluding Parent PLUS borrowers) repaying loans under the Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR) plan — which includes Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) — would have their loan balances forgiven at the point at which they had repaid an amount equal to the amount of principal and interest that they would have repaid under the standard 10-year repayment plan, if that would occur before the borrower reached the 20- or 25-year point of repaying under an IDR plan when the balance otherwise would be forgiven. This would be more generous for some borrowers than the current IDR plan cancellation provisions, which allow for cancellation only after 20 or 25 years of repayment, regardless of how much the borrower has repaid. However, borrowers with zero-dollar or very low monthly payments under IDR plans would still face the longest time in repayment.
The bill also includes a provision for borrowers (excluding Parent PLUS borrowers) whose payment amounts don’t cover their accrued interest once they’ve reached the 10-year mark in repayment (or longer for a consolidation loan with a longer standard repayment period based on balance owed). In those cases, ED would cancel the accrued interest.
Graduate and professional student borrowers stand to lose the most from the elimination of the Grad PLUS and PSLF programs, but undergraduate students are not entirely spared since many would also be impacted by the loss of PSLF.
The bill increases graduate and professional annual unsubsidized loan borrowing limits from $20,500 to $25,000, but also institutes a $100,000 aggregate unsubsidized loan borrowing cap for graduate and professional borrowers, down from the current $138,500. Health professions students would now be subject to these same borrowing limits, a significant loss for that population that can currently borrow up to $47,176 per year and $224,000 in aggregate
The proposal would allow institutions to impose lower loan limits for students based on enrollment intensity, credential level, year in program of study, or program of study (based on projected earnings), with case-by-case exceptions permitted, aligning closely with NASFAA’s recommendations.
The bill removes statutory references to interest capitalization events, such as when loans enter repayment grace periods, periods of deferment, and upon default. This would complement ED’s regulatory efforts to eliminate all non-statutory capitalization events, which is set to become effective next July.
Other provisions of the bill include a second opportunity for borrowers to rehabilitate defaulted loans, which NASFAA supports. The bill also proposes a new income-based repayment plan that closely matches the existing IBR plan except that the minimum monthly payment would be $25 instead of $0 and the three-year interest subsidy would be removed. This new IBR plan and a standard 10-year repayment plan would be the only plans available to new loans made after July 1, 2023.
Limitations on Secretarial Authority
The bill proposes to ban ED from issuing any regulations — either through negotiated rulemaking or established outside of the negotiated rulemaking process, including through executive action — that would “result in an increase in a subsidy cost resulting from a loan modification.”
Further, via the negotiated rulemaking process, ED would be prohibited from issuing regulations that are deemed economically significant (defined as having an annual effect on the economy of at least $100 million, or adversely and materially affecting the economy, a sector of the economy, competition, jobs, productivity, public health or safety, governments, or communities) and would result in an increase in a subsidy cost resulting from a loan modification.
Pell Grants for Short-Term Programs
Finally, the bill would allow students enrolled in short-term programs to qualify for Workforce Pell Grants. Eligibility would be limited to students enrolled in between 150 and 600 clock hours offered over a period of eight to 15 weeks in programs that provide education aligned with in-demand industry sectors or occupations. There are no restrictions on institutional participation by sector or control, but programs would have to demonstrate a graduation rate and job placement rate of at least 70% to offer Workforce Pell Grants. These outcome measures guardrails match current restrictions on loan eligibility for students enrolled in short-term programs, although loans are limited to program lengths of at least 300 credit hours offered over at least 10 weeks and require ED approval, so not all students who qualify for Pell Grants would necessarily qualify for loans.
As another condition of being able to offer the Workforce Pell Grant, institutions would have to demonstrate that its federal student aid recipients who completed the program saw an increase in median earnings of at least the amount of the program’s published tuition and fees between the time of enrollment and within two years of program completion.
All current Pell Grant student eligibility rules would apply with the exception that students who are enrolled in a program of less than one year, and who currently cannot receive a Pell Grant because they are eligible for less than the minimum award, could qualify for a Workforce Pell Grant.
Publication Date: 8/4/2022