The House Education and Workforce Committee has produced a set of recommendations that represent the largest student loan reform in history. Written as part of the reconciliation process, it could deliver more than $351 billion in savings.
In addition to providing much-needed deficit reduction, the policies would also change higher education in ways that make it fairer and address bad incentives that have warped the system for decades.
Many of the provisions flow from the College Cost Reduction Act, which the Congressional Budget Office estimated would save $185.5 billion. The committee saves even more due to upward revisions relative to last year along with the addition of several new reforms.
The most important aspect addresses student loan repayment. During the Biden administration, a series of schemes (many of which were struck down in court) transferred hundreds of billions in debt from borrowers to taxpayers.
The committee would not only undo Biden-era plans, but also reform the underlying statute with a new Repayment Assistance Plan. This would save taxpayers a tremendous amount while helping to prevent loan debt from escalating for borrowers, striking a delicate balance.
Changes to the PLUS loan program and a cap on borrowing through federal programs would further reduce the financial risk for the public. Equally important, it would slow down the gravy train that universities have relied on to fund skyrocketing tuition fees. As students become more concerned about costs, academia will be more accountable for spending on radical departments and luxury amenities.
Relatedly, the proposal includes an element of accountability by requiring risk-based reimbursements from institutions participating in federal loan programs. Some of the fees would be used to fund a new grant program (“PROMISE”), with the remainder going toward deficit reduction.
Another crucial element is regulatory reform. Addressing rules that put for-profit schools at a disadvantage would save billions. Placing guardrails on future regulatory activity (such as the Biden administration’s misadventures) would save far more and represent an overdue move to reduce the power of federal agencies.
Changes to the Pell Grant program would make the program more affordable for taxpayers and fairer for young adults. Several provisions would tighten eligibility requirements for the traditional Pell program, creating savings through reconciliation and reducing what will be needed in future appropriations. There is also a new Workforce Pell Grant to remove the federal bias against hands-on skill training.
Sadly, there is a notable missed opportunity: the lack of fundamental reforms to the Public Service Loan Forgiveness (PSLF) program, which allows selected workers to write off student loan debt after 10 years of payments.
The PSLF program is more generous than the Pell Grant program, even though Pell is targeted towards disadvantaged individuals and PSLF is not. Further, the original premise of PSLF – that bureaucrats and NGO staffers are giving up massive amounts of pay – is not the case when most of these workers are generously compensated.
While the new Repayment Assistance Plan will lead to smaller loan balances for those eligible for PSLF, thus reducing the program’s cost, this does not address the favoritism being provided to public-and-nonprofit sector workers.
Congress should rein in PSLF in the final reconciliation legislation. Since reconciliation savings create space for tax cuts, reforms to PSLF could directly put money back in the hands of taxpayers.
