Part 2 Deep Dive: Foxx’s College Cost Reduction Act Includes Changes to Pell, Campus-Based Aid, and Loans

By NASFAA Policy & Federal Relations Staff

Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce, earlier this month introduced the College Cost Reduction Act, which seeks to address issues around college cost, accountability, and transparency.

This article, the second in a three-part series analyzing the bill, focuses on aspects of the legislation that would establish a Pell Plus program – effectively doubling a student’s Pell Grant – replace FSEOG and LEAP programs with a new PROMISE program, and establish new loan limits and loan repayment plans.

Part 1 of this series covered this bill’s proposal to create a standardized financial aid offer form, update the College Scorecard, and create a new Postsecondary Student Data System.

New Definitions

Effective with the 2025-26 award year, the bill introduces a new “median cost of college” concept to the determination of financial need. Under this new framework, a student’s financial need would be equal to the median cost of college of the program of study in which they are enrolled, minus their student aid index (SAI) and any other financial assistance received. The median cost of college is defined in the bill as the median of the cost of attendance for similar programs at all higher education institutions across the country. Pell Grants could not exceed the median cost of college.

Federal Pell Grant program

The bill establishes a “Pell Plus” program, which would award eligible baccalaureate level students at participating institutions an additional Federal Pell Grant (Federal Pell Plus Grant) in an amount equal to their original Pell Grant amount. It outlines the requirements a student must meet to be considered eligible, which include being enrolled in their first baccalaureate course of study, having completed at least four semesters or equivalent, and maintaining progress toward on-time completion of the program (100% of program length). If a student’s combined Pell Grant and Pell Plus Grant exceed the median cost of college for their program, the Pell Plus Grant will be reduced so that the student’s combined total of Pell and Pell Plus dollars received do not exceed the median cost of college.

Pell Plus Grants would count toward Lifetime Eligibility Used (LEU) similar to how standard Pell Grants are counted. In essence, the proposed changes would reward students who complete a baccalaureate degree in four year’s time with the benefit of receiving the full six year’s Pell Grant lifetime eligibility in just four years.

The bill also outlines institutional requirements to participate in the Pell Plus program. Institutional participation is voluntary and schools would need to indicate if they will participate at the individual program level or participate for all programs. Schools would also be required to provide eligible students a notification indicating whether they are maintaining progress towards completion and how much Pell Plus Grant funds they will receive.

If the student is not maintaining progress towards completion, the school would need to provide a list of additional resources and support services to help the student complete their courses. If the student is not maintaining progress toward completion by the end of the first semester of the third academic year, the school would be required to provide a warning indicating that the student would not be eligible to receive a Pell Plus Grant if they do not demonstrate progress toward completion by the beginning of the fourth academic year.

Institutions participating in the Pell Plus program must provide each Pell Grant recipient enrolled in a Pell Plus program of study with a “maximum total price” for their program and must guarantee that the maximum total price will not exceed the median value-added earnings of students who have completed that program. Maximum total price is the difference between the total amount of tuition and fees (including required costs) for completion of the program of study and the total of non-federal grants and scholarships. 

Value-added earnings would be calculated for all Title IV aid recipients who completed their program of study. Value-added earnings would equal the student’s annual earnings at 1 year, 2 years, or 4 years post-completion (depending on credential earned), less 150% of the federal poverty guideline for an undergraduate credential, or 300% for a graduate credential.

This would be based on the latest data available on the College Scorecard from the award year immediately prior to the student’s current year of enrollment at the institution. Information about this guarantee would need to be readily available for students on the institution’s webpage, their marketing materials, and other publication sources. Schools must provide the maximum price guarantee for at least the “median time to credential for students who completed any undergraduate program of study at the institution during the most recent award year for which data are available,” and for at least the length of the program in which the student is enrolled. The bill also notes that schools do not have to provide the maximum price guarantee after a period of 6 years has passed since the student first enrolled at the institution.

Campus-based aid programs.

Beginning on October 1, 2026, this bill would terminate the Federal Supplemental Educational Opportunity (FSEOG) Grant and the Leveraging Educational Assistance Partnership (LEAP) programs. Those programs would then be replaced with Promoting Real Opportunities to Maximize Investments and Savings in Education (PROMISE) grants, which would be awarded to eligible institutions beginning in the 2026-2027 award year in six year increments.

Institutions applying to receive the performance-based PROMISE grants must meet the maximum total price guarantee requirements and demonstrate they will continue to meet those requirements for students first enrolling at the school within the six-year grant period. Additionally, institutions would need to show how they plan to use the PROMISE grant funds to promote affordability, postsecondary access, and student success. The application would also need to describe how the institution plans on evaluating the effectiveness of their use of the PROMISE grant funds, in addition to how the institution would gather and share information on best practices.

To be considered eligible and to receive PROMISE grant funds, each institution would need to determine their maximum total price for each program of study for a designated set of income and student aid index categories. Institutions must ensure that students are able to access maximum total price information on the institution’s webpage and other publication sources. If a student receives multiple maximum total price guarantees because they fall in more than one category, or if they are participating in the Pell Plus program, the lowest maximum total price guarantee will be applicable to that student.

The amount an eligible institution could receive in PROMISE grant funds would be determined annually by a funding formula that takes into account median value-added earnings, the maximum total price of the program of study, the total dollar amount of Federal Pell Grants awarded at the institution, and the percentage of low-income students enrolled at the institution that received federal financial aid and completed their program of study on time (or, in the case of a two-year institution, successfully transferred to and completed a bachelor’s degree at a four year institution). The maximum amount an institution would be able to receive in PROMISE grant funds each year would be equal to the three-year average of the number of federal student aid recipients enrolled at the institution multiplied by $5,000.

As outlined in the application to be considered eligible, institutions would be able to use PROMISE grant funds in various ways, including activities to help promote higher education affordability, access, and student success. Additionally, institutions would need to evaluate their use of PROMISE grant funding and share best practices.

The PROMISE grant program would be funded by risk-sharing payments, described in detail in the forthcoming third article in this series. If the risk-sharing payments are not enough to cover the program’s funding, the bill authorizes $2 billion starting in fiscal year 2026 through the following nine fiscal years. If funding for the program is still insufficient after the risk-sharing payments and the funds authorized through this bill, ED would be permitted to provide PROMISE grant funding to eligible institutions in the order of which institutions have the highest percentage of low-income students.

Loan limits

Beginning July 1, 2025 this bill would enact changes to annual and aggregate loan limits for the federal direct loan programs.

While current annual loan limits remain in place, further limitations are placed on how much undergraduate students can borrow, both annually and in the aggregate, ultimately making the annual limit whichever is lower of the two, the current limits or the new limits described below.

Undergraduate subsidized federal direct loans would be capped annually at the sum of the median cost (defined above) of the program of study in which they’re enrolled, minus the sum of the Federal Pell Grant, and Pell Plus if applicable that they’ve been awarded, up to their cost of attendance. Students can borrow unsubsidized federal direct loans for up to the difference between the median cost of college of the program of study in which they’re enrolled, the amount of Federal Direct Subsidized loans they’ve accepted, and the amount of Pell and Pell Plus they’ve been awarded. In aggregate, undergraduate students may not borrow more than $23,000 in subsidized loans and $50,000 in combined subsidized and unsubsidized loans. Currently, dependent students may not borrow more than $23,000 in subsidized loans and $31,000 in combined subsidized and unsubsidized loans, and independent undergraduate students may not borrow more than $23,000 in subsidized loans and $57,500 in combined subsidized and unsubsidized loans.

Graduate unsubsidized annual limits remain unchanged at $20,500, but are capped annually at the median cost of college of the program of study in which the student is enrolled, as long as the amount of the loan and the amount of other financial assistance the student has received does not exceed the cost of attendance for the student. The aggregate loan amount a graduate student may borrow is capped at $100,000 and the cap is $150,000 for professional program students. Combined undergraduate and graduate aggregate borrowing is capped at $200,000. Additionally, this bill would terminate the Graduate PLUS and Parent PLUS loan programs effective July 1, 2025.

Similar to a bill introduced and endorsed by NASFAA in early 2023, a section of this bill allows institutions, at the discretion of a financial aid administrator, to prorate or limit the amount of a loan a student may receive if they can reasonably demonstrate that the amount of eligible loan allowed under this act would be excessive for the student based on their enrolled program. The reduction must be applied equally to all students in the program. Currently, financial aid administrators may only limit loans on a case-by-case basis using professional judgment.

The bill also allows increases for individual students who were subject to the institutionally-set limit. The discretion is left to the judgment of a financial aid administrator, and the amount may still not exceed the annual loan limit applicable to the student.

Loan repayment

The College Cost Reduction Act, effective July 1, 2024, would create two repayment plans that borrowers may choose from, eliminating all the other current repayment plans from new enrollments. The borrower may choose from a standard 10-year repayment plan, or what would be similar to an income-driven repayment plan, dubbed a “repayment assistance plan” under this bill.

Under the repayment assistance plan, borrowers monthly payments would be 10% of their annual income above 150% of the poverty line. Borrowers enrolled in this plan, who make on-time in-full payments would see at least half of their payment applied to the loan’s principal, even if the portion that goes towards their interest doesn’t cover the full amount, as the remaining interest costs would be waived, effectively eliminating the negative amortization. This plan would also cap the total amount of payments to what the borrower would pay under the standard 10-year repayment plan, replacing the time based forgiveness systems currently in place.

If a borrower does not make a selection for a repayment plan when eligible, they will be automatically placed into the standard 10-year repayment plan. Current borrowers would be able to switch to one of these plans, or remain in their current plan.

The bill also prohibits ED from creating new repayment plans, or modifying existing plans if they increase costs to the government.

Loan rehabilitation

This bill would allow borrowers in default to benefit from the loan rehabilitation process twice, instead of only once.

Interest capitalization

The bill removes references to interest capitalization events, such as when loans enter repayment grace periods, periods of deferment, and upon default. This would be effective for current and new borrowers upon the date that the College Cost Reduction Act is enacted and would complement ED’s recent regulatory effort to eliminate all non-statutory capitalization events, which became effective in July of last year.

Origination fees

This bill would repeal origination fees, effective for any loans made after July 1, 2024.

Stay tuned to Today’s News for part three of this deep dive and for any updates on the College Cost Reduction Act.


Publication Date: 1/22/2024

Lisa N | 1/23/2024 11:54:37 AM

Termination of plus and parent plus loans would not be good for anyone especially at a graduate prof degree level. At grad/prof degree level they will need the grad loan to pay for tuition & living expenses. And also no increase in grad level unsub amount? How will grad prof students pay their tuition? Living expenses? With the shortage of prof degree people in society, we need to help students advance to this level instead of cutting them off. Doctors, attorney, psychiatrist and other mental health positions, engineers need more help not cuts. I'm afraid this is only the beginning. Loan borrowers need to be held responsible, just like recruitment at institutions. Those folks you want to give double Pell to are the same ones that need help paying for their professional degrees.

David S | 1/23/2024 9:45:04 AM

The Pell Plus and PROMISE grant stuff is a) ironic in an era in which everyone is striving to simplify financial aid and b) a pretty obvious attempt at federal price controls on tuition. I thought Republicans were all in love with the free market.

The loan proposals, particularly the elimination of PLUS loans, is there as a blatant gift to private lenders; between reducing the federal involvement in lending and prohibiting ED from creating new repayment plans or modifying existing ones, borrowers will have fewer repayment options, they (especially grad/prof students) will be forced to deal with the complexity of mixed federal/private borrowing and repayment, and PSLF will take an enormous hit.

Hard no for me.

Bryan G | 1/22/2024 3:52:49 PM

The loan repayment options outlined in this bill strips power away from the President and the Department of Ed. I sincerely doubt the President would sign off on this as borrower repayment assistance has been a cornerstone of his administration.

Jesse H | 1/22/2024 11:41:46 AM

This bill has some good stuff in it, but the administrative burden of all of the new calculations and the student confusion that could ensue as figures vary widely from school to school is going to cause confusion for students and migraines for FAAs. This bill might as well be called "The FAFSA Re-Complication Act".

James C | 1/22/2024 9:55:14 AM

I like the idea of a Pell PLUS and the PROMISE grant, but there are a lot of added regulatory requirements placed on schools. Limiting aggregate loan amounts is a bad idea. We need to be increasing annual and aggregate loan limits, not reduce them. If any restrictions should occur it should be for undergraduates in certificate or associate degree programs. It doesn't make sense their aggregate loan limits are the same as baccalaureate students. Also, I would like to see subsidized loan eligibility based on SAI and not on a need calculation that rewards high cost schools.

Ben R | 1/22/2024 9:18:08 AM

While it makes sense in theory, there are a couple of issues on the idea of program-based loan limitations that are lower than the statutory limits. It's hard to see how this would be applied uniformly or consistently when the new statute allows for up to $200,000:

How would an FAA apply the loan limit when nearly every student in a program plans to get their loans cancelled under PSLF or IDR? Is their loan considered excessive when they don't really have to pay it all? Also, how would you handle new students with existing debt from previous programs that puts them at or above the discretionary acceptable limit? Do you ignore prior loans as though they are starting from scratch? Such students are likely over that threshold before they start a new program, but since it's discretionary, it's hard to see the school saying they just can't use loans at all.

Bottom line - this tries to apply some sense of reason, but still leaves the door open to over borrowing for a variety of reasons.

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