3.8 Million Student Loan Borrowers Will Lose Access To Lower Payments By July If GOP Bill Passes

Nearly four million student loan borrowers are at risk of losing access to affordable payments, as Republican lawmakers move forward to enact sweeping changes to repayment plans and student loan forgiveness programs.

One of the major targets of the proposed legislation is Parent PLUS borrowers. Parent PLUS loans are a type of federal student loan issued to the parent of an undergraduate student. While the student is the one who benefits from the loan, their parent is the legal borrower, and the parent is the one responsible for the loan’s repayment. Historically, Parent PLUS loans have had fewer affordable repayment plan options compared to traditional federal student loans. But proposed legislative reforms would place even more severe limits on these loans, and would effectively cut off access to affordable repayment options for most of the 3.8 million borrowers who have Parent PLUS loans.

The reforms are part of a broader effort by congressional Republicans to use the budget reconciliation process to enact President Donald Trump’s legislative agenda through narrow party-line votes, including extending major tax cuts and slashing government spending. The House already passed its version of the reconciliation bill last month, and GOP Senate leaders may bring their bill to a vote as soon as this weekend. While full passage of the legislation by Congress isn’t a foregone conclusion, party leaders hope to have the bill on President Trump’s desk sometime in July.

Parent PLUS Loans Have Had Limited Access To Student Loan Repayment Plans Tied To Income

Parent PLUS loans have always had more limited repayment options compared to most other types of federal student loans. As a rule, Parent PLUS loans are ineligible for income-driven repayment plans. IDR plans allow borrowers to have a monthly payment tied to their income and family size, with the possibility of student loan forgiveness after 20 or 25 years in repayment.

However, since 2006 there has been an important exception. Borrowers who consolidate their Parent PLUS loans into a federal Direct consolidation loan have been able to access the Income-Contingent Repayment plan, or ICR. ICR is the oldest and most expensive IDR plan, and may not make sense for higher-income earners. For example, a Parent PLUS borrower with an Adjusted Gross Income of $150,000 and a family size of 2 would pay around $2,150 per month under ICR – hardly an affordable payment, and likely more costly in this example than what the borrower would pay under a traditional Standard repayment plan.

But for Parent PLUS borrowers who have experienced a reduction in their income, Direct loan consolidation and ICR can be a lifesaver. A borrower with $150,000 of Parent PLUS loan debt on a fixed income of $40,000 annually would not be able to afford Standard plan payments, which could be more than $1,700 per month. But if the borrower consolidated their loans and enrolled in ICR, their monthly payment would be only $405 per month.

GOP Bill Would Cut Off Most Parent PLUS Borrowers From Affordable Payments And Student Loan Forgiveness

Legislation that Republican lawmakers in Congress are on the cusp of passing would make student loan repayment much harder for Parent PLUS borrowers, and the impacts could be profound. Both the House and Senate versions of the budget reconciliation bill would repeal the ICR plan (as well as PAYE and SAVE), including for current borrowers. The bill would create a new repayment option based on income called the Repayment Assistance Plan, or RAP. But Parent PLUS loans would be ineligible for RAP, even if they consolidate their loans.

The result is that most of the 3.8 million Parent PLUS borrowers would have no option to base their student loan payments on their income. In addition, these borrowers would effectively be cut off from student loan forgiveness, both under IDR plans as well as via the Public Service Loan Forgiveness program. PSLF requires that payments be made under qualifying repayment plans, which for the most part are IDR plans. Without being able to access IDR, Parent PLUS borrowers would also not be able to access PSLF.

The GOP-sponsored bills do provide one important exception to the sweeping changes. Parent PLUS borrowers who have already consolidated their loans via the Direct consolidation program and are already enrolled in the ICR plan at the time that the bill is enacted would effectively be grandfathered in. While ICR would still be repealed, these borrowers would be moved to a modified version of the Income-Based Repayment plan, or IBR – a plan that historically has been unavailable for Parent PLUS borrowers. In many cases, IBR is a more affordable repayment option than ICR, which could result in lower monthly payments.

But all other Parent PLUS borrowers would be cut off from student loan forgiveness and income-driven repayment. This may also include borrowers who pursued so-called “double consolidation” to enroll in other IDR plans like the SAVE plan or PAYE. As written, the legislation appears to only grandfather in consolidated Parent PLUS loans that are specifically enrolled in the ICR plan.

Can Parent PLUS Borrowers Act Now To Lock In Lower Student Loan Payments?

So can Parent PLUS borrowers who are not already enrolled in the ICR plan do anything now to preserve their access to income-driven repayment and student loan forgiveness? The answer is complicated, and may depend largely on a borrower’s specific circumstances:

• Parent PLUS borrowers who have not consolidated their loans and are not enrolled in IDR may simply not have enough time to do anything if the July timeline for passage of the legislation holds. The consolidation process alone typically takes 30 to 60 days, and that’s before the Department of Education and its loan servicers would even start processing an application for the ICR plan. ICR is an expensive plan, and may be unaffordable for many borrowers who haven’t experienced a significant reduction in income.
• Parent PLUS borrowers who have already consolidated their loans via the Direct loan program, but are not enrolled in ICR, can potentially submit an application to switch to the ICR plan. But as noted, ICR may not be affordable for many current borrowers. And even borrowers who could benefit from ICR may not be able to enroll quickly enough – there is a 1.5 million application backlog for IDR applications, with wide variability in processing times.
• Parent PLUS borrowers who have a “double consolidation” loan and are enrolled in one of the other IDR plans like SAVE or PAYE are in an even tougher position, as the GOP bills would repeal SAVE and PAYE, in addition to ICR. On the one hand, it is possible that these borrowers could simply be moved over to the IBR plan, as the legislation provides for all other student loan borrowers enrolled in those repayment plans. On the other hand, the language in the bill is quite specific and indicates that Parent PLUS borrowers must shave a Direct consolidation loan enrolled in the ICR plan to be grandfathered in. Parent PLUS borrowers who are in SAVE or PAYE (or IBR) could try to switch to ICR now, but as noted above, ICR can be much more expensive, and there are no guarantees an application would be processed in time. And there’s a possibility that attempting to change plans could leave these borrowers without any IDR option at all.

Ultimately, Parent PLUS borrowers are in a tough spot. There is a very real possibility that they could be cut off from affordable repayment plans and student loan forgiveness, quite soon. And they aren’t the only borrowers who could face higher payments if the reconciliation legislation ultimately passes. Some student loan borrower advocacy organizations are urging borrowers to contact their congressperson and senators, as there is still time to make changes to the bills.