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Republicans offer alternative to Biden’s student loan forgiveness plans

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Diving brief:

  • Republican lawmakers published Thursday a legislative proposal to rework federal student loan policies, presenting it as an alternative to the Biden administration’s plans, which they deemed costly and regressive.
  • The bill would be ease the kinds of repayment plans the U.S. Department of Education might offer, eliminate the beleaguered civil service loan forgiveness program, and prevent the Secretary of Education from issuing regulations that would cost the federal government. The legislation is known as the Responsible Education Assistance through Loan (REAL) Reforms Act.
  • It would scrap a loan program for graduate students and end a practice known as interest capitalization, which inflates borrowers’ debt by adding unpaid interest to the principal amount of a loan. The bill would also allow federal Pell Grants to apply to short-term programs with a minimum of 150 hours over eight weeks.

Overview of the dive:

President Joe Biden has moved to revamp several elements of the federal student loan system, including the Public Service Loan Forgiveness, or PSLF, which forgives workers’ loan debt in areas like nursing and government. after a decade of qualifying payments. He also pledged to revise income-tested repayment plans, in which borrowers’ monthly installments are determined based on their income, typically over a 20-25 year period.

Both of these programs have drawn criticism.

Only a tiny fraction of borrowers eligible for the PSLF have benefited from debt cancellation over the duration of the program, created in 2007. The Biden administration temporarily backed out some PSLF requirements last year, providing flexibility to borrowers that expires at the end of October. The waiver makes more payments eligible for the PSLF than they otherwise would have been.

The Department of Education also said loan servicers have moved borrowers away from income-oriented and forbearance plans, which temporarily allow no or small monthly payments, but generally do not allow borrowers to progress towards repaying their loans or reaching debt cancellation thresholds.

The Department recently delayed the release of a draft regulation on income-contingent plans.

Republicans were quick to condemn the administration’s efforts, as well as its repeated pause extensions on monthly loan payments begun due to the coronavirus pandemic. They also blasted reports that Biden was considering widespread loan write-offs. More recently, Biden reflected using executive action to cancel $10,000 of debt per borrower.

The GOP bill would prevent the Secretary of Education from issuing what Republicans have described as “unlawful waivers of loan forgiveness programs. It is led by Representative Virginia Foxx of North Carolina, a senior member of the House Education and Labor Committee, along with Representatives Elise Stefanik of New York and Jim Banks of Indiana.

This would simplify the number of repayment plans to just two – a standard decade-long option and an income-based option.

The bill would also significantly limit loan options for graduate students.

It would set loan limits for them, so they couldn’t withdraw more than $25,000 a year, or no more than $100,000 for the duration of their study program. The legislation would also remove Graduate PLUS loans, which allow graduate students to borrow up to their tuition.

Colleges would have the ability to lower borrowing limits based on student specialization or other circumstances, to protect against unaffordable debt.

And the proposal would try to ensure that tuition and fees do not exceed the increased income students get from enrolling in certain programs, another way to protect them from mountainous debt.

Democrats and progressive groups denounced the bill.

Representative Bobby Scott of Virginia, chairman of the House Education Committee, said in a statement that the plan “would make student loans more expensive to obtain and harder to repay,” contrary to the system’s intention. federal loan. He pointed to the provisions concerning the abolition of the PSLF and income-based schemes.

And the Institute for College Access and Success said the bill would make the student loan crisis worse.

“It would make student loans more expensive, restrict access to education for students from low-income backgrounds, and extend federal funding to programs that provide a low return on investment,” said TICAS President, Sameer Gadkaree, in a statement. “As the country emerges from the Covid-19 pandemic, we need forward-thinking policies that will make post-secondary opportunities more accessible and equitable.”