A group of House Republicans on Thursday unveiled a new piece of legislation and proposed their alternative framework to President Joe Biden’s efforts to overhaul the student loan portfolio.
The bill, dubbed the Federal Assistance to Initiate Repayment (FAIR) Act, was unveiled by Rep. Burgess Owens (R-Utah), who chairs the House Committee on Education and the Workforce’s subcommittee on higher education and workforce development, and had the endorsement of Rep. Virginia Foxx (R-N.C.), who leads the full committee, as well as Rep. Lisa McClean (R-Mich.). The lawmakers argue that the proposal would offer “responsible” fixes to the student loan system and provide a path back into repayment for borrowers.
“The President’s radical guidance and reckless executive orders have left schools, servicers, and students uncertain about the future,” the bill sponsors wrote. “The pandemic is over, and borrowers need concrete guidance on a pathway forward to repayment.”
The bill places a large focus on student loan repayment, including transitioning borrowers back into repayment following a more than three-year pause due to the pandemic, and reigning in the administration’s efforts to implement changes to repayment plans through executive action.
In terms of the return to student loan repayment, now slated to occur this fall as a part of the debt ceiling agreement, the bill would require the Department of Education (ED) to issue at least 12 notifications, through multiple forms of communications, to borrowers prior to the repayment resumption. Those notifications would be required to include information on when repayments resume, borrowers’ repayment options, as well as personalized information for identified at-risk borrowers, such as those in default or who have been reassigned to a new servicer. The bill would also consider students who had applied for Biden’s one-time student debt relief program, the future of which will be determined by the U. S. Supreme Court this month, as “at-risk.”
For repayment plans, the bill would provide borrowers with two options: the standard 10-year repayment plan, as well as a new income-driven repayment (IDR) plan. Borrowers who are paying under a current income-based or income-contingent plan would be automatically enrolled in the new IDR plan.
The new IDR plan would require borrowers to repay the principal and interest they would have accrued under a standard 10-year plan (or the length of their consolidation loan repayment term, if applicable) as calculated when they entered repayment, removing the cap on the length of repayment, a term included in most current IDR plans. The monthly payment amount would be calculated as 10% of the borrower’s discretionary income, defined as income in excess of 150% of the federal poverty guideline. If the repayment terms of a repayment plan in which they previously enrolled were more beneficial, then a borrower would be able to retain those benefits.
The plan would eliminate negative amortization for borrowers with incomes below 300% of the federal poverty guideline. These lower-income borrowers would also receive a principal credit equal to one-half of the amount of their monthly payment in any month that their monthly payment amount is less than twice the amount of interest for that month. Borrowers with incomes above 300% of the federal poverty guideline could also receive these benefits, but only if they agreed to repay 15% of their discretionary income versus the 10% specified in the plan.
In seeking to simplify the repayment process, the bill would allow deferments on loans made on or after July 1, 2024 for the following six groups of borrowers previously covered and includes:
Borrowers currently in school
Borrowers in their grace period
Those pursuing a graduate fellowship or rehabilitation education program
Borrowers who are active duty servicemembers
Those in administrative deferment
Those in a cancer deferment
The bill also includes four new groups of borrowers (with the legislation providing for 10 total groups of borrowers) who would be allowed to make deferments. Those new groups include:
Those on National Guard duty
Those in a medical or dental internship or residency program
120-day deferment for defaulted borrowers who sign new agreements to repay their outstanding balance
Borrowers who are in a military spouse deferment
Borrowers with loans made prior to July 1, 2024 may still follow previous deferment rules.
Interest would not accrue on subsidized loans for borrowers who enter deferment in one of the 10 groups allowed, except when a borrower is enrolled in a medical or dental internship or residency program or is a member of the National Guard who is not eligible for a post-active duty deferment. Interest will accrue under all deferments for unsubsidized loans except during administrative deferments and cancer deferments, and the bill maintains the current law benefit of no interest accrual for active duty servicemembers deployed in hostile areas.
The bill would also:
Prohibit ED from offering additional deferment options or periods of deferment besides those authorized in statute;
Expand the loan rehabilitation process for borrowers with defaulted loans by enabling borrowers to go through the process a total of two times, as opposed to the current allotment of one rehabilitation;
Prohibit any new regulations or executive actions related to the student loan program, including creation of new repayment plans or modifications to existing repayment plans, that increase costs to the federal government; and
Prohibit ED from implementing its proposed IDR plan.
In the coming days, the Supreme Court is expected to rule on the legality of the administration’s student loan debt cancellation program, which will likely prompt more clarity and policy discussions over the impending wind-down of the student loan payment pause and freeze on interest accrual.
Publication Date: 6/20/2023