Student Loan Borrowers Could Face Lifetime Of Debt Under GOP Plan To Gut Loan Forgiveness

House Republicans on Tuesday successfully passed a budget resolution that paves the way for trillions of dollars in tax cuts, which lawmakers hope to offset with significant reductions in federal spending. The move allows lawmakers to proceed with plans to draft legislation that would cut up to $330 billion in education-related spending, in part by slashing federal student loan forgiveness and repayment plan programs.

The passage of the budget resolution is a critical next step as GOP lawmakers push forward with a massive reconciliation bill, which they hope to pass via narrow party-line votes in the House and Senate to enact key components of the Trump administration agenda.

“The American people have been clear that they want to end wasteful government spending,” said Education and Workforce Committee Chairman Tim Walberg (R-Mich.) in a statement. “This budget resolution delivers on that promise while providing relief to working families, students, and small businesses. This is only the first step; I urge my friends in the Senate to adopt the House budget so we can get to work on implementing President Trump and the American taxpayer’s agenda.”

But borrower advocates have warned that gutting federal student loan forgiveness and repayment programs could be devastating for borrowers, leading to increased costs for millions of Americans and pushing many into default or a lifetime of indebtedness.

Republican Lawmakers Propose Major Cuts To Student Loan Forgiveness And Repayment Programs

According to a House Budget Committee blueprint, Republican lawmakers are looking at a number of federal student loan programs to narrow, cut, or reduce. Proposals include the following:

• Repealing Biden-era regulations for the Borrower Defense to Repayment program, which allows borrowers to request student loan forgiveness due to certain kinds of school misconduct.
• Repealing Biden-era regulations for Closed School Discharges, which can eliminate the federal student loan debt for borrowers whose school closed while they were enrolled, preventing them from completing their program.
• Prohibiting the Department of Education from enacting regulations to authorize new student loan forgiveness programs.
• Sunsetting the federal Direct Parent PLUS and Direct Graduate PLUS programs.
• Eliminating student loan interest subsidies for borrowers while they are enrolled in school.
• Ending the student loan interest tax deduction.
• Imposing new taxes on scholarships and fellowship income.
• Making unspecified changes to eligibility for the Public Service Loan Forgiveness program. PSLF can provide loan forgiveness in as little as 10 years for borrowers who devote their careers to nonprofit or government work while meeting other program criteria.
• Eliminating the nonprofit status of hospitals and healthcare facilities, which could cut off student loan forgiveness for millions by blocking PSLF.

Many of these proposals were part of the College Cost Reduction Act, or CCRA, which Hose Republicans introduced last year, although it never passed. House GOP lawmakers project billions of dollars in savings over 10 years by making these changes.

Repealing Student Loan Forgiveness And IDR Plans Could Lead To Higher Payments And A ‘Lifetime Of Debt’

But perhaps the most significant of the House GOP proposals is the repeal of all existing income-driven repayment, or IDR, plans.

IDR plans provide affordable monthly payments to borrowers using a formula applied to their income and family size with eventual student loan forgiveness, typically after 20 or 25 years. Current IDR options include the Income-Contingent Repayment plan, Income-Based Repayment plan, Pay As You Earn, and the SAVE plan, which is the newest of these repayment options.

Republican lawmakers are proposing to repeal all of these IDR plans (not just the SAVE plan, which has been a GOP target since its inception), and replace them with a new IDR option. This option would be somewhat similar to existing IDR plans in some ways, but would be more expensive than the SAVE plan, leading to higher monthly payments for many borrowers. In some cases, the increase in payments could be quite significant. It is unclear whether payments under this new IDR plan would qualify toward loan forgiveness under PSLF.

“Student loan borrowers in public service fields such as teaching would pay more under the CCRA than under SAVE, and monthly payment requirements would be higher across the board,” said the Center for American Progress in a report earlier this month.

Perhaps even more significant, however, is that under the proposal, time-based student loan forgiveness after 20 or 25 years in repayment would be a thing of the past. Instead, borrowers would only qualify for loan forgiveness after having paid at least the total amount that they would have paid under a 10-year Standard plan. Borrowers who don’t pay that amount could be kept in repayment for far longer than 25 years, and possibly for the rest of their lives.

“The CCRA replaces the time-based cancellation found in current repayment plans with a requirement that borrowers pay the total amount they would have paid under a standard 10-year repayment plan,” said the Center for American Progress. “All borrowers must fulfill this requirement, and it could trap some—particularly low-income borrowers—in lifelong repayment terms.”

“For borrowers whose incomes are persistently below 150% of the federal poverty level ($23,475 for a single person), the House Republican proposal is a lifetime sentence of student loan debt,” concurred the Institute For College Access And Success in its own report earlier this month. The Institute also warned that lower-income borrowers would not receive an interest subsidy like they would under the SAVE plan, “and their balance would balloon” over time as a result.

The changes would apply to new loans as of June 2024, according to a prior draft of the CCRA, suggesting that current borrowers in repayment may be grandfathered into existing repayment plan options.

What’s Next For Student Loan Forgiveness Proposals

The passage of the House budget resolution follows a tumultuous week for student loan borrowers. Last week, the 8th Circuit Court of Appeals extended an injunction blocking the SAVE plan as well as student loan forgiveness under the ICR and PAYE plans, as a legal challenge brought by Republican-led states continues. In response to the ruling, on Friday the Department of Education removed the online applications for all IDR plans, even though one of those plans — IBR — is not covered by the 8th Circuit’s injunction. It is unclear at this time whether loan servicers are processing any IDR applications.

In the meantime, Republican lawmakers will press ahead with the reconciliation bill. The next step for lawmakers is to start drafting legislation that will be much more specific in identifying cuts to these programs. Borrowers may know much more in the coming weeks which student loan forgiveness and repayment programs are most at risk.