Today, Education and Labor Committee Republican Leader Virginia Foxx (R-NC), House Republican Conference Chair Elise Stefanik (R-NY), and Republican Study Committee Chairman Jim Banks (R-IN) announced they will introduce the Responsible Education Assistance through Loan (REAL) Reforms Act, a bill that offers commonsense and fiscally responsible reforms to benefit students and borrowers in our country’s federal student loan system.
On the bill, Reps. Foxx, Stefanik, and Banks said:
“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. Instead of placing the burden of this broken student loan system on the shoulders of American taxpayers, we are introducing this bill to fix the system.
“Our reforms are fiscally responsible, practical solutions to help students and borrowers. This bill provides targeted relief for borrowers in the greatest need and helps Americans who have been excluded from postsecondary education access high-quality short-term programs. This will allow individuals to gain quickly the skills needed to fill in-demand jobs. It rejects broad student loan forgiveness for those earning six-figure salaries and curtails the Department of Education’s ability to unilaterally forgive debts. This bill also provides long overdue reforms to graduate student lending and eliminates the expensive and regressive runaway loan forgiveness programs. Lastly, this bill would put a stop to usurious student loan practices by placing a cap on excessive interest for existing borrowers harmed by years of Democrat policies, and protects future borrowers from these predatory practices going forward.
“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.
“The REAL Reforms Act is what responsibility looks like.”
Background: America’s student loan system is broken. This bill addresses critical flaws in that system, so institutions of higher education no longer have an incentive to saddle students with excessive debt for degrees that don’t pay off.
President Biden exploited the COVID-19 pandemic to enact a radical student loan cancelation agenda, which provides enormous windfall to high-income borrowers while failing to assist borrowers in greatest need. As of August 2022, Biden forgave, canceled, or waived over $200 billion in federal student loans—all without Congressional approval. In response to this reckless agenda, Republicans drafted the REAL Reforms Act to:
Target relief for the borrowers most in need
- Provides targeted student loan relief to borrowers, who made years of payments, but saw their balances explode due to Democrats’ poorly designed repayment policies.
- Ensures responsible, existing borrowers enrolled in income-driven repayment (IDR) plans pay back only what they owe taxpayers by ensuring their outstanding balance doesn’t grow beyond a loan’s principal and 10 years of interest and credits borrowers’ payments towards that amount.
- Offers a way for borrowers to pay down their principal if they previously made payments for 10 years but those payments only covered interest.
- Eliminates interest capitalization that unnecessarily allows interest to balloon on a borrower’s loan balance, increasing their monthly payments, and setting borrowers years back from repaying their loans.
- Allows defaulted borrowers to get back on track to repayment by giving them a second chance to rehabilitate their loans and enroll in an affordable repayment plan, removing the black mark of default from their credit report.
Protect students, borrowers, and taxpayers
- Bars the Education Secretary from issuing regulations that cost taxpayers tens of billions of dollars without approval from Congress, like Biden’s latest proposal costing taxpayers at least $85 billion.
- Ends the costly and regressive repayment pause, which was extended four times by this administration and cost taxpayers $4.3 billion per month to provide de facto loan forgiveness of at least $5,500 to every borrower.
- Streamlines the confusing web of IDR plans into one transparent and predictable plan that ensures borrowers only repay their principal with the standard 10 years’ worth of interest, but have the time they need to do so affordably.
- Blocks the Biden administration from issuing a SIXTH IDR plan that is expected to be far more generous than those currently on the books.
Rein in runaway loan forgiveness programs
- Eliminates the costly and regressive Public Service Loan Forgiveness (PSLF) program for future borrowers.
- PSLF was intended to be a limited program to help public servants, but now favors high-income, graduate student borrowers and encourages schools to overcharge students under the promise of forgiveness. This program costs taxpayers at least $28 billion; not including the President’s proposed regulations which could add as much as $59 billion to the backs of taxpayers.
- New estimates show that more than $145 billion could be forgiven through Biden’s PSLF waiver with doctors receiving an average of $134,000 in loan forgiveness.
- Ends time-based forgiveness under IDR, which allows borrowers to make payments as little as $0 to receive loan cancellation.
- IDR plans were expected to cost taxpayers $212 billion even before President Biden took office. Over two-thirds of loans being cancelled under these programs are held by graduate students.
Limit outrageous borrowing
- Ends uncapped borrowing for graduate students through the higher interest Grad PLUS program which enables colleges to charge exorbitant prices, buries students in unaffordable debt, and is set to cost taxpayers at least $6.4 billion in losses over the next decade.
- Institutes reasonable loan limits that will keep the doors of graduate education open to students from all socioeconomic backgrounds while also ensuring low-quality programs cannot access unlimited taxpayer dollars.
- Allows institutions the flexibility they need to lower borrowing limits based on student’s major or other circumstances to protect students from taking out debt they cannot afford to pay back or for degrees with little to no return on investment.
Expand pathways to the American Dream
- Allows Pell Grants to be used for short-term, career-focused programs that provide valuable credentials for in-demand jobs.
- Requires the new Workforce Pell Grant to go to programs that are equipping graduates to move up the economic ladder quickly and at a fraction of the cost of a baccalaureate degree.
- Protects students from programs with a low return on their investment by prohibiting tuition and fees of the program from exceeding the earnings boost students receive from the credential.
To read the bill, click here.
To read a detailed bill summary, click here.
To read a fact sheet of the bill, click here.