Reconciliation Deep Dive: House Committee Proposes Major Overhaul of Federal Student Loans, Repayment, and PSLF
By Megan Walter, Senior Policy Analyst
Last week, the House Committee on Education & Workforce released and advanced its portion of a reconciliation bill, outlining significant proposed changes to the federal student loan system. The legislation touches nearly every aspect of borrowing and repayment, including eliminating certain loan types, restructuring repayment plans, and modifying eligibility for Public Service Loan Forgiveness (PSLF). This NASFAA deep dive, the second in a three-part series, will focus on portions of the text concerning the federal loan system, repayment programs, PSLF, and loan servicing.
See NASFAA’s first deep dive, focusing on changes to the Pell Grant program, campus-based aid, need analysis, and student eligibility. For background and a full recap of the reconciliation process, see NASFAA’s earlier coverage.
Loan Programs and Loan Limits
The bill proposes a major restructuring of available federal loans, effective July 1, 2026. Notably, subsidized loans for undergraduate students would be eliminated, meaning all undergraduate federal borrowing would accrue interest while enrolled. The GradPLUS loan program would also be terminated with no new loans to be issued after this date.
For undergraduate students relying solely on unsubsidized loans, new borrowing limits would apply. The annual limit would be the national median cost of the specific program of study, less the amount of any Federal Pell Grant received by the student. See NASFAA’s first article in this series for an explanation of the median cost of college calculation. The aggregate, or total lifetime, limit for undergraduate borrowing would be capped at $50,000.
Graduate students would also face new unsubsidized loan limits. Annually, they could borrow up to the national median cost of their program. Aggregate limits would be set at $100,000 for graduate students, on top of the $50,000 students can borrow for undergraduate study. For professional students (or those who have previously been professional students), the aggregate cap is $150,000, reduced by any amount previously borrowed for a standard graduate program (and vice-versa for graduate students who borrowed for professional programs).
A transition rule would allow borrowers enrolled before June 30, 2026, who received loans from the eliminated programs (subsidized undergraduate or Grad PLUS), to continue borrowing under prior limits, but only for their remaining "expected time to credential." This could potentially prevent students from extending enrollment just to access these loans.
Parent PLUS loans would also be significantly altered. Parents could only borrow if their dependent student has already taken out their maximum annual unsubsidized loan amount. The annual Parent PLUS limit would be the student’s cost of attendance of their program of study, minus the student's annual maximum unsubsidized loan eligibility. Critically, the bill introduces a $50,000 aggregate limit per parent borrower, regardless of the number of dependent students they support. Furthermore, the bill proposes an overall aggregate lifetime borrowing limit of $200,000 for any single borrower across all federal loan types. Crucially, this includes any ParentPLUS loan amounts borrowed by a parent on behalf of a dependent student, which would count towards that specific student's individual $200,000 lifetime cap.
Other changes include mandatory loan proration for students enrolled less than full-time. Under this requirement, the actual loan amount would be calculated by first determining the student's enrollment level as a percentage of a full-time course load, rounding this percentage to the nearest whole number, and then awarding that proportion of the standard full-time loan amount. Institutions would also gain broad authority to set lower borrowing limits for specific programs, as long as the limits are applied consistently to all students within that program, a provision that NASFAA has long supported.
Repayment Options and Borrower Protections
The proposed legislation significantly narrows borrower repayment options and curtails the Department of Education's (ED) regulatory authority. The bill explicitly limits ED's power to create or regulate Income-Based Repayment (IBR) plans beyond the single plan outlined in the legislation, waiving the standard negotiated rulemaking process. It also removes ED's requirement to offer Income-Contingent Repayment (ICR) plans.
Borrowers would have two repayment pathways under this bill: a standard repayment plan, with repayment length based on the total amount borrowed, and a new Income-Based Repayment (IBR) plan, dubbed the "Repayment Assistance Plan". This plan functions as the bill's sole income-driven repayment option, featuring a 30-year path to forgiveness. It includes an interest subsidy when monthly payments don't cover accruing interest and allows for principal forgiveness if a payment covers less than $50 of the principal. Once a borrower elects to enroll in the Repayment Assistance Plan, they may not change their repayment plan for that specific loan.
Borrowers enrolled in any of the current ICR plans as well as borrowers in forbearance prior to the day before the enactment of this bill would be automatically transitioned into the newly created repayment assistance plan.
For borrowers taking out new loans on or after July 1, 2025, certain deferment options, specifically Economic Hardship Deferment and Unemployment Deferment, would be eliminated. Forbearance rules would also tighten for these new borrowers, limiting eligibility to a maximum of 9 months within any 24-month period. An exception is made for medical or dental internships or residencies, where borrowers could receive interest-free forbearance for the first four 12-month forbearance intervals; interest would accrue on other forbearances if taken.
The bill offers a slight expansion in loan rehabilitation, allowing borrowers to rehabilitate defaulted loans twice (up from once), including Perkins loans. However, it mandates that rehabilitation payments cannot be less than $10 per month, ending the possibility of $0 payments even for borrowers with very low incomes.
Public Service Loan Forgiveness
The bill changes the definition of public service to exclude time spent in a medical or dental internship or residency program from counting towards PSLF forgiveness. This exclusion would apply to individuals who, as of June 30, 2025, have not already borrowed a GradPLUS or an unsubsidized loan for a graduate-level program, potentially impacting future physicians and dentists seeking public service careers.
Loan Servicing
The bill provides ED with up to $500 million annually for FY 2025 and 2026 in additional, mandatory funding for student loan administration. These funds specifically cover administrative costs and operational needs like loan servicing and program management during those years.
Publication Date: 5/6/2025
Sonya T | 5/6/2025 8:33:28 AM
The proposal for the Federal Student Loan sounds balanced from an educational perspective. However, students use their loans to cover living costs while in their respective programs. Let's take the medical students as an example. Typically, they pay not only for their housing but also for child care and other family-related costs. I suppose that was the point of offering Grad Plus loans. In conclusion, as a society, we will need to rethink how we attend colleges and universities in the future.
You must be logged in to comment on this page.