Last Thursday, Democratic members of the House Committee on Education and Labor released the Lowering Obstacles to Achievement Now (LOAN) Act, which tackles college affordability through actions like doubling the Pell Grant and reducing the cost of student loan borrowing. The bill comes on the heels of the Responsible Education Assistance Through Loan (REAL) Reforms Act released by House Republicans in early August, which offered its own loan reforms but fell short by limiting the ability for borrowers to take out loans without offering ways to reduce the need for student borrowing.
Through gradual annual increases, the bill would double the maximum Pell Grant over a five year period starting in 2024-25, eventually reaching $13,000 by the 2028-29 award year. The proposal also includes subsequent automatic increases to the maximum grant based on inflation in the years that follow, and establishes that Pell Grant appropriations would come exclusively from mandatory funding. Doubling the maximum Pell Grant, permanently indexing the maximum award to inflation, and shifting the program to fully mandatory funding to align the program’s structure with how it operates — as an entitlement — are all changes long supported by NASFAA.
The bill would also enact a minimum Pell Grant award of 5% of the maximum award, rather than the current 10%, another change recommended by NASFAA. Permitting students who qualify for at least 5% of the maximum award to receive a Pell Grant would allow more students to receive a Pell Grant, including those who attend part-time, and would mitigate the possibility of a steep eligibility cliff for students whose Student Aid Index (SAI) falls just outside of the Pell-eligible range.
Students with a negative Student Aid Index (SAI) would be eligible for a maximum Pell Grant equal to the annual maximum award plus the amount by which their SAI falls below zero, and means-tested benefits recipients would receive an automatic SAI of -1500, the lowest possible value for the SAI. The bill would also raise the Pell lifetime eligibility limit to 18 semesters, an increase from the current 12-semester cap.
The measure would extend Title IV student aid eligibility to students enrolled in the Deferred Action for Childhood Arrivals (DACA) program. A staunch supporter of the DACA program and expanding aid eligibility to DACA recipients, NASFAA has long advocated for Congress to pass bipartisan legislation that would codify permanent protections for undocumented students.
Additionally, the proposal would allow graduate and professional students who received a Pell Grant as an undergraduate to use any remaining Pell eligibility during their first post-baccalaureate course of study. In order to use remaining eligibility while completing a graduate or professional degree, students must have received a Pell Grant for at least one semester during their undergraduate enrollment, and would have to otherwise meet the Pell eligibility requirements excluding the requirement that the student cannot have completed a baccalaureate degree.
Satisfactory Academic Progress
The LOAN Act contains a number of provisions that were previously included in the Pell Grant Preservation and Expansion Act, a bill introduced by top Democrats in June of last year. Both pieces of legislation include language that would dictate new, stricter standards on how often institutions measure and report on Satisfactory Academic Progress (SAP) and provisions that may impact how schools award their own institutional aid.
The proposal introduced last week provides for up to two SAP “resets” by which students who leave postsecondary enrollment for two years after failing to meet SAP standards can re-enroll and receive Title IV student aid. In calculating SAP in subsequent terms, the unearned credits that contributed to SAP failure would not factor into the post-reset SAP calculation. The bill requires the Department of Education (ED) to communicate with students who have failed SAP about the availability of the SAP reset. Such a provision would presumably require an additional reporting requirement for institutions, since SAP status is not presently reported to ED.
The measure includes proposed changes that would remove the flexibility institutions currently have to review SAP either at the end of every payment period or annually. Instead, it would require all institutions to conduct SAP reviews at the end of each payment period, with students failing SAP receiving one payment period of Title IV eligibility on warning status before either being placed on probation or losing eligibility. While the bill permits institutions with shorter payment periods to review SAP at the end of each semester or equivalent period of 12 to 18 weeks instead of at the end of each payment period, the bill does not account for programs that have very short gaps between payment periods. This could pose challenges for schools who will have to complete SAP reviews in as short a timeframe as a few days in order to comply with the new rules, leaving students little time to appeal.
The bill also contains a provision that would dictate how institutions distribute some of their own institutional aid. The bill prohibits academic progress standards for institutional need-based aid from being more stringent than federal SAP standards unless the institution could demonstrate to ED the effectiveness of those limitations on improving student persistence in, and completion of, postsecondary study.
Public Service Loan Forgiveness
The bill includes language that would reduce the number of qualifying payments needed for a borrower to receive Public Service Loan Forgiveness (PSLF) from 120 payments—which if made consecutively would be 10 years—to 96 payments, or 8 years if made consecutively.
The bill also codifies several of the PSLF waivers that are set to expire October 31 of this year. Those new permanent PSLF provisions include removing the requirement that borrowers continue to be working at a qualifying employer when forgiveness is granted, and allowing borrowers who received Teacher Loan Forgiveness to count those years of service toward PSLF as well.
Borrowers in certain types of deferments—including but not limited to cancer treatment, military service, economic hardship, and administrative forbearance—would have the time spent in those deferments counted towards their qualifying 96 payments as long as they still met the other PSLF eligibility criteria. And Federal Family Education Loan (FFEL) borrowers would be permitted to consolidate into the Direct Loan program and have their payments made prior to the consolidation count toward PSLF, as the current waiver permits.
Loans, Fees, Interest Rates, Interest Capitalization, Refinancing, and Automatic IDR Enrollment
The bill restores subsidized Direct Loan eligibility to graduate and professional students and repeals subsidized and unsubsidized loan origination fees for loans with first disbursements made on or after July 1, 2023, both of which NASFAA has long supported.
The LOAN Act also lowers the interest rate cap for all loan types. If enacted, the interest rate for all loans made after July 1, 2023 would be the rate of the high yield 10-year Treasury note at the final auction prior to June 1 of each year, capped at 5%, versus current caps ranging from 8.25% to 10.5% depending on loan type. Like now, these new interest rates will continue to change every year, but the interest rate determined for each loan at disbursement will be fixed for the life of the loan.
Borrowers who had loans disbursed prior to July 1, 2023 would be able to refinance their loans under the bill to take advantage of the new, post-2023 interest rates. The LOAN Act also would allow borrowers with private education loans who meet certain eligibility criteria to refinance their private loans into the Direct Loan program and qualify for the same terms as Direct unsubsidized loans.
The bill would eliminate all instances of interest capitalization and the disclosure requirements related to capitalization.
The measure provides for an order of application of funds when borrowers make a prepayment. Servicers would be required to apply prepayment amounts first toward outstanding fees like collections costs or authorized late charges. After those fees are paid, or for borrowers who do not have outstanding fees, the prepayment amount would go to the balance of the loan with the highest interest rate. If all of the borrower’s loans carry the same interest rate, the prepayment amount would go toward the loan with the highest principal balance.
ED would be required to communicate with borrowers who are at least 31 days delinquent on a loan with information about repayment plans, including estimated monthly payments under each plan and how to select a plan.
When borrowers become at least 80 days delinquent on a loan, ED would place the borrower in an income-driven repayment plan with the lowest monthly payment. If there are multiple income-driven repayment plans that would have the borrower paying the same monthly payment, ED would select the plan that is most beneficial to the borrower based on other factors. Delinquent borrowers would have the option to change the plan assigned to them by ED.
ED would be required to inform borrowers who are rehabilitating defaulted loans, after their sixth payment, that they will be automatically enrolled in an income driven repayment plan upon full rehabilitation of the loan. After the ninth payment, ED would then assign the borrower the IDR plan with the lowest monthly payment or the most beneficial terms.
This bill and the Republicans’ REAL Reforms Act will likely serve as the parties' top agenda items for the new Congress that will be sworn into office in the new year following November’s midterm elections. The bills will also shape the discussion over the chamber's higher education policy debate.
Publication Date: 9/19/2022