The Republican Alternative

As the Biden administration inches closer to a final decision on whether to erase billions in student loan debt, House Republicans have introduced an alternative proposal.

The bill would reform certain aspects of the federal student loan system, including simplifying repayment methods, decreasing the impact of interest and establishing new borrowing limits. Republicans have long argued that President Biden does not have the authority to enact sweeping student loan cancellation, and that debt cancellation would do little to reform the system that places students in debt in the first place.

It would also allow Pell Grants to be used for short-term programs, like technical training and workforce development.

The bill comes as a government watchdog, the Government Accountability Office, released a report last week that said the federal student loan system has cost the federal government billions of dollars instead of bringing in revenue, as the current administration has argued. Republicans believe Biden’s campaign promise to enact mass cancellation of student loan debt would continue to drive costs, and the student loan program should be reformed at large.

The Responsible Education Assistance through Loan Reforms (REAL) Act is unlikely to gain support in the Democratic-controlled House of Representatives, especially because it would prohibit the Biden administration from issuing new regulations on student loans if they would increase costs to the federal government, including mass debt relief.

The bill has also received pushback from some who argue that it would make the student debt crisis worse instead of reforming it. Sameer Gadkaree, president of the Institute for College Access and Success, said in a statement, “This proposal would exacerbate the college affordability crisis and directly harm millions of current and future students. It would make student loans more expensive, restrict educational access for students from low-income backgrounds, and expand federal funding to programs that provide poor return on investment.”

President Biden has said that he plans to unveil his debt relief plan by the end of the month, right before the current pause on loan repayments is set to expire. Although the president remains undecided on his final plan, a recent Politico article reported that the Education Department is prepared to deliver Biden’s debt-relief plan as soon as the president gives the thumbs-up.

Recent White House deliberations have included a plan to cancel $10,000 of student debt per borrower, capped at those with annual incomes under $150,000. However, no plan has been finalized. “The Biden administration has been engaging in mass student loan forgiveness behind Americans’ backs without the authorization of Congress. In total, to date, the president has already forgiven, waived, or canceled at least $217 billion in student loans through the unlawful abuse of his executive pen,” Representative Virginia Foxx of North Carolina said in a statement on the bill. The bill was introduced by Foxx as well as Representatives Elise Stefanik of New York and Jim Banks of Indiana.

“Unlike Democrats’ mass student loan forgiveness scheme, these reforms provide targeted relief to borrowers who need it the most and recognize that not every career path requires a baccalaureate degree,” said the Republican lawmakers.

When asked what tools the Republicans have considered using to stop Biden from canceling student loan debt, a staff member on the House Education and Labor Committee, on which Foxx is the ranking member, said that although they are exploring options, their options are limited given the Democratic majority in Congress. 

Simplifying Repayment

Borrowers have to navigate an often-confusing bureaucracy when it comes to identifying a repayment plan that works best for their current income. There are currently four different income-driven repayment plans that borrowers can choose to enroll in to lower their monthly student loan payment depending on their income.

The Republican bill would reform two types of IDR plans: income-contingent repayment and income-based repayment. If a borrower is enrolled in an income-contingent plan, the bill would prevent the borrower’s debt from growing past the loan’s principal amount, and after 10 years of repayment, the interest on any federal student loan would be forgiven.

Borrowers would pay 15 percent of their discretionary income toward the loan and would be required to pay a minimum of $25 a month. Borrowers would not have to demonstrate financial hardship or be under a certain income bracket to enroll.

In addition, the bill would eliminate interest capitalization, an effort that the Biden administration proposed in July.

It would also allow borrowers to qualify for loan forgiveness once the borrower has made payments equal to their principal as well as 10 years’ worth of interest and any interest accrued during a loan deferment.

Borrowers who are struggling to cover their interest after being in repayment for 10 years would have their interest waived, allowing the borrower to make payments on their principal loan amount. The interest would continue to accrue for the remainder of the borrower’s repayment term.

Loan Limits

Republicans have argued that borrowers should not be able to take out excessive student loan debt for programs that do not yield postgraduate incomes sufficient to cover their student loan debt. The bill would establish loan limits for graduate borrowers, barring graduate students from taking out more than $25,000 a year and no more than $100,000 for the duration of their program.

The average federal student loan debt taken on by graduate students is $91,000, according to 2021 data from the Education Data Initiative.

The bill would also eliminate Graduate PLUS loans, which allow graduate students to borrow up to the total cost of attendance for their program, and the Public Service Loan Forgiveness program, which provides debt relief to borrowers working in public service jobs, such as teaching, nursing or military service, after making 120 payments. As of June 2022, $8.1 billion in student debt has been canceled for 145,000 borrowers through PSLF.

Amy Scott, associate vice president of government relations and public policy at the Council of Graduate Schools, said, “The proposed elimination of [Graduate PLUS loans] for new borrowers would not only disincentivize prospective students from pursuing a graduate education but could have detrimental impact on meeting state and local workforce demands that require a graduate degree.”

It would also allow financial aid offices at colleges to limit the amount of debt a student can take on, both at the undergraduate and graduate level. Colleges can flag certain programs as producing “excessive debt” based on factors like salary outcomes or the length of the program.

Limits on Executive Authority

The Republican bill would prohibit the Biden administration from using executive authority to enact mass debt cancellation. It would also tie Education Secretary Miguel Cardona’s hands, preventing him from enacting any changes to the federal student loan program that would increase costs to the federal government.

Last Friday, a Government Accountability Office report was released that found that over the last 25 years, the federal student loan program has actually cost the government $311 billion, when the Education Department said it had earned the government $197 billion between 1997 and 2021. Republicans expressed outrage over the findings in the report.

“Any way you look at it, the claim that the federal government ‘profits’ off student loan borrowers is false. Taxpayers have lost hundreds of billions of dollars on this program,” said a group of Republican lawmakers in a statement on the report.

The legislation would also prevent Cardona from extending the current pause on student loan payments, from issuing waivers to federal student loan programs (such as the PSLF waiver, currently set to expire on Oct. 31), and from issuing new repayment plans.

Workforce Pell Grants

The bill would allow Pell Grants to be used for short-term programs. In order to qualify, the program must offer at least 150 hours of study over eight weeks, have a job-placement rate of at least 70 percent, and be shown to provide graduates with an income that is greater than the cost of attendance of the program two years after completion.