Congress Takes Huge Step To Repeal 6 Student Loan Repayment Plans And Force Many Borrowers To Pay More

A key House committee passed the Student Success and Taxpayer Savings Plan on Tuesday, a Republican bill that is part of the party’s broader effort to enact President Donald Trump’s legislative agenda of extending massive tax cuts paid for by slashing government spending. If the bill is ultimately enacted through the budget reconciliation process, it would fundamentally remake the entire federal student loan repayment system by cutting off or pushing out loan forgiveness and forcing millions of borrowers into more expensive repayment plans.

“Today, the Education and Workforce Committee passed the Student Success and Taxpayer Savings Plan—a vital portion of Trump’s big, beautiful bill to provide tax relief for American families and small businesses, rein in wasteful spending, and reduce the federal budget deficit,” said the committee in a statement on Tuesday.

“Our current student loan system is broken and has left students holding over $1.6 trillion in federal student loan debt, with taxpayers estimated to lose hundreds of billions of dollars on loans disbursed over the next decade,” said Education and Workforce Committee Chair Tim Walberg (R-Mich.) following the committee’s passage of the bill. “The bill passed by Committee Republicans today not only would save taxpayers over $350 billion but also bring much-needed reform in three key areas: simplified loan repayment, streamlined student loan options, and accountability for students and taxpayers. I’m proud of the Committee’s work today to finally stand up and end the status quo of endless borrowing.”

But the proposed changes to student loan repayment programs would have profound impacts for millions of borrowers, potentially leading to higher payments and cutting off loan forgiveness eligibility. Here’s a breakdown.

Proposal Would Eliminate Most Existing Student Loan Repayment Plans And Push Out Loan Forgiveness

A core element of the Student Success and Taxpayer Savings Plan bill is a complete overhaul of the federal student loan repayment system. And the changes won’t just impact new borrowers; many existing borrowers currently in repayment on their student loans would be affected, too.

Currently, there are about a dozen federal student loan repayment plans, broken into two broad groups. There is a collection of repayment plan options with fixed monthly payments over a traditional amortization schedule, without regard to a borrower’s income or their ability to pay. This includes a 10-year Standard plan, a 25-year Extended plan, a Graduated repayment option where payments start off relatively low and increase over time, and consolidation Standard plans with terms of up to 30 years, depending on the initial balance.

Then, there are income-driven repayment plans. IDR is an umbrella term that encompasses a collections of repayment plans tied to a borrower’s income and family size, with borrowers entitled to student loan forgiveness for any remaining balance by the end of the repayment term, typically 20 or 25 years. Under the IDR umbrella, there are three “income-contingent” repayment plans including Income-Contingent Repayment, Pay As You Earn, and the new SAVE plan which was designed to be the most affordable IDR option. Separately, there are two “income-based” repayment plans; an older version of IBR that is the most accessible IDR program, and a newer version of IBR that is about 33% less expensive than it’s older counterpart with a 25-year student loan forgiveness term instead of 20. This “new” IBR plan is only available for borrowers who first took out federal student loans on or after July 1, 2014.

The Student Success and Taxpayer Savings Plan would upend this federal student loan repayment plan system by narrowing down the number of plans to just two. One “Standard” plan option would have fixed payments on a term of between 10 and 25 years, depending on the borrower’s balance. And a new income-driven option called the Repayment Assistance Plan (or RAP for short) would have monthly payments comparable to the PAYE plan and new IBR, but with a 30-year student loan forgiveness term instead of 20 or 25 – effectively forcing borrowers to repay their loans for far longer.

It would be one thing if, under the bill’s terms, current student loan borrowers would be able to continue repaying their student loans under existing plans. That would be largely true for borrowers currently in repayment under Standard and Graduated plans. But for current borrowers in one of the four existing IDR plans, things get very complicated.

Current Borrowers On Income-Driven Plans May Be Forced To Pay Higher Student Loan Payments

A prior version of the Student Success and Taxpayer Savings Plan (called the College Cost Reduction Act) would have grandfathered in current borrowers into the existing IDR system. But the legislation passed by Republicans in the House Education and Workforce Committee on Tuesday would not do that. The bill would repeal all income-contingent repayment plans including the ICR, PAYE, and SAVE plans. It also would eliminate the “new” IBR plan. That effectively would leave only the older, more expensive version of IBR, and the new RAP plan created by the bill.

If enacted, this will have profound impacts for millions of federal student loan borrowers. The more than eight million borrowers who have been in the SAVE plan will be forced under the bill’s terms into the older version of IBR, which could double or even triple their monthly payments. They could opt into the RAP plan instead to have somewhat more affordable payments, but that would extend their repayment term by five to 10 years or more (SAVE allowed for student loan forgiveness on varying timelines between 10 and 25 years).

Meanwhile, borrowers currently in PAYE and “new” IBR would also be forced into the older version of IBR under the terms of the legislation. This will result in most of these borrowers experiencing roughly a 33% increase in their monthly payments, as the older version of IBR uses a 15% discretionary income formula rather than 10% for PAYE and new IBR. As with SAVE plan borrowers, those who are in PAYE and new IBR could opt to switch into the new RAP plan instead, which would have comparable payments for most middle-income borrowers (although lower-income borrowers would have higher payments under RAP). But the tradeoff is an additional 10 years in repayment due to RAP’s 30-year student loan forgiveness term, as opposed to 20 years for PAYE and new IBR. Borrowers would also be locked into RAP if they opt in — they would not be able to change their minds later and switch to IBR.

Some Parent PLUS Borrowers Could Be Locked Out Of Affordable Payments And Student Loan Forgiveness

The situation would be particularly complicated for Parent PLUS borrowers. Parent PLUS borrowers are generally ineligible for income-driven plans, but if they consolidate their Parent PLUS loans into a Direct consolidation loan, that Direct consolidation loan can be repaid under the ICR plan. For older Parent PLUS borrowers on a fixed income, ICR can be a lifeline when no other fixed repayment plans are affordable. But the Student Success and Taxpayer Savings Plan eliminates the ICR plan.

Under the bill, Parent PLUS borrowers who have already consolidated their loans and are enrolled in ICR as of the bill’s enactment would be automatically moved into the older version of IBR – which may actually lower their monthly payments, since IBR is generally a more affordable plan than ICR. But all other Parent PLUS borrowers would be permanently locked out of any income-driven repayment option, since they cannot enroll in RAP and would be barred from enrolling in IBR after the bill’s passage.

This would also effectively prevent Parent PLUS borrowers not already enrolled in income-driven repayment from pursuing student loan forgiveness, as well. If these borrowers cannot enroll in IDR, they cannot get their loans forgiven under IDR. They also would not be able to benefit from Public Service Loan Forgiveness, which typically requires that borrowers enroll in an IDR plan.

What’s Next For The Bill That Would Change Student Loan Repayment Plans

For the time being, none of these changes to student loan repayment plans have become law yet. The Student Success and Taxpayer Savings Plan must now go to the House Budget Committee before it can be sent to the full House for a floor vote. The Senate must also pass its own reconciliation bills. Then, leaders from key House and Senate committees must hammer out any differences between the two versions of the bills before they can finalize the legislation, pass it through both chambers of Congress, and send it to President Trump for his signature. There could be changes to the legislation at nearly any step during this process.

If the bill in its current form ultimately becomes law, borrowers could see changes to their student loan repayment plan, their monthly payments, and their student loan forgiveness eligibility by the end of this year.