What is the revision of Republican student loan

The Republicans of the House have introduced a comprehensive review of the student loan as part of the broader budget reconciliation process. Known as “Student Success and Taxpayer Savings Plan”, the reform package It aims to save hundreds of billions of dollars through new student loans, changes in the repayment system and policies to keep colleges responsible for their results. If established, the proposals would also prevent the negative depreciation and discourage colleges to load students with excessive debt.

Because Republicans will attach these reforms to a bill to reconcile the budget that also promotes other democratic priorities, such as the expansion of 2017 tax cuts, the package has a good chance of passing the House of Representatives. But the body must still process a compromise with the Senate, where legislators have proposed their own set of student loan reforms that differ in some places.

However, policies in the body of the body are more likely to become laws than any important proposal to reform higher education we have seen for a long time. Student loan changes fall into three categories: loan limits, changes in repayment plan, and colleges accountability. Let’s look at each one in turn.

Loan limits

• The total loan limit for undergraduate borrowers will be $ 50,000, which is higher than the current $ 31,000 limit for dependent students, but below the $ 57,500 limit for independent students. The subsidy to school for some undergraduate loans is eliminated.
• Loans to undergraduate students’ parents will also have a total of $ 50,000. These loans are currently unlimited. Students must exhaust their own eligibility loan before parents can borrow on their behalf.
• Postgraduate borrowers have a total loan limit of $ 100,000. Students in professional programs such as medicine have a limit of $ 150,000. These loans are currently unlimited.
• The annual loan limits are equal to the average cost of participation for similar programs at national level, minus any federal grant assistance. Colleges can set lower loan limits if they choose it.

The ceilings for postgraduate and parental lending are delayed. Study after study He has shown that colleges take advantage of these unlimited loans to pass the tuition. Universities have used postgraduate loans as fund to finance expensive postgraduate programs with dubious value, while many schools have unspecified Tens of thousands of dollars in parental loans to low -income families. The new limits of total loans will help to accelerate these predatory practices, although they remain quite high.

The proposal also gives dependent undergraduate students more lending. The highest limits of students can increase overall lending and could affect tuition prices, although proposed accountability policies should mitigate this (more so below). While the lower loan limits may have been preferable, the maximum suggested are a good start.

Changes to repayment plans

• For new borrowers, there will be two repayment plan options: a standard plan with payments of over 10 to 25 years and a new income -based plan, the Plan for repayment assistance (RAP).
• The RAP sets monthly payments as a percentage of borrowers’ income on a sliding scale of 1 to 10 percent, with a minimum payment of $ 10. The plan waives non -paid interest and provides credit to the leader to ensure that their borrowers in line with their payments.
• Current borrowers can choose to RAP or select the existing income repayment plan (IBR). The repayment plans created by the executive, including the Biden administration storage plan, are abolished for all borrowers. The Department of Education is forbidden to create new repayment plans.

The new repayment plan is Earthshaking. For borrowers who make payments in time, the RAP ends the phenomenon of increasing balances, because payments are inadequate to cover interest. This negative depreciation was Achilles heels of today’s income -based repayment plans, where the three -quarters of borrowers See the rest of them grow Over time, according to the Congress Budget Office.

RAP guarantees that borrowers will pay the Lord – at least $ 50 a month if they are paid with payments – and most borrowers will retire their loans faster than they would under current plans. We should not underestimate the psychological benefits of a quick repayment. Borrowers who see their rest consistently, months after the month, will be more willing to remain committed to their loans.

Simplifying repayment options is also welcome, as is the move to prevent the training department from creating new plans. Borrowers should have a certainty to move on. The government must have repayment options and stick with them. In addition, taxpayers will save money in the long run if the Executive Branch cannot create generous new repayment plans to win the borrowers.

College accountability

• Colleges will share responsibility with taxpayers to cover the cost of the non -paid interest paid and the main credit. Colleges are also responsible for a share of delayed or lost payments. The percentage to cover schools is higher for institutions that charge higher prices than their graduates’ profits.
• These “risk distribution” payments from colleges are available and rearranged as direct grants to other performance -based institutions. The promise grant program, as is well known, benefits schools that register a high number of Pell Grant students, charge reasonable prices and maintain strong integration and profit results.

While RAP protects students whose profits are not sufficient to pay their debts, the body’s proposal also properly asks colleges to share some of the financial loads. This “distribution of risks” will help compensate for some of the cost of rap. Moreover, it will discourage schools from loading students with debt that cannot afford. The higher the debt, the higher the interest and the likely is that the student will require a resignation of interest that college should help pay.

This is the main space of the proposal in my view. Changes in the origin and repayment of the loan will have a limited impact if the colleges themselves have no incentives to keep debt at a reasonable level. Risk distribution payments are unlikely to be catastrophic for most colleges-the amounts we are talking about are relatively low-but they are still immediate financial encouragement for colleges to make the necessary changes. There is no excuse not to reduce debt: the bill gives the colleges the power to set lower loan limits if they choose it.

Promise subsidy is also welcome as carrot to accompany the risk distribution stick. My analysis A similar proposal from last year shows that community colleges with technical or professional focus are more likely to benefit. The new grants could be an additional incentive for these schools to offer new programs in high demand fields, as well as to give schools the economic ability to expand.

A new way for student loans

The proposal of the body is a three front attack on the student loan monster. Loan limits aim to ensure that debt levels are reasonable. The new repayment plan will prevent increasing balances. College accountability will ensure that debts that force students to take on the basis of the results. If it passes, the result of this policy mix will be a weaker and more sustainable student loan system.