Republicans Unveil Student Loan Forgiveness and Repayment Reform Legislation

Congressional Republicans have unveiled sweeping legislation designed to reform the federal student aid system. If passed, the bills – collectively called the Federal Assistance to Initiate Repayment (FAIR) Act – would impact nearly every element of federal student loans, from applying for aid to repayment and student loan forgiveness.

“The FAIR Act is a fiscally responsible, targeted response to the chaos caused by Biden’s student loan scam,” said Higher Education and Workforce Development Subcommittee Chairman Burgess Owens (R-UT), Rep. Lisa McClain (R-MI), and House Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) in a statement. “This Republican solution takes important steps to fix the broken student loan system, provide borrowers with clear guidance on repayment, and protect taxpayers from the economic fallout caused by the administration’s radical free college agenda.”

Here's what the proposal would do.

FAIR Act would reform repayment and student loan forgiveness

The FAIR Act is actually a collection of smaller individual bills, each of which would impact different elements of the federal student loan system. Taken together, the bill would do the following:

Mandate a return to repayment and an end to the student loan pause

This provision may be redundant, as President Biden already codified the end of the student loan pause when he signed a federal spending bill earlier this month to raise the debt limit. The FAIR Act would require the Education Department to send at least 12 notifications to borrowers about the return to repayment.

Codify federal preemption of state laws

This may limit the ability of federal student loan borrowers to sue federal student loan servicers under state law over unfair or deceptive practices. Several states have enacted a “Student Loan Borrower Bill of Rights” during the last few years, many of which give borrowers a basis to sue federal student loan servicers under state law.

Eliminate most federal student loan repayment plans as they currently exist

The bill would reduce the number of repayment plans to just two: a 10-year Standard plan and a new income-driven repayment (IDR) plan. “Current borrowers paying under one of the existing fixed repayment plans eliminated under the bill will be able to continue paying under those plans or choose to pay under the standard 10-year plan or the new IDR assistance plan,” while the bill, “automatically places current borrowers paying under an income-based or income contingent plan in the new IDR plan,” according to a committee summary of the bill.

This Republican-proposed IDR plan would be similar to the old REPAYE plan, with borrowers paying 10% of discretionary income. Note that REPAYE was replaced with the new SAVE plan, allowing for more generous borrower benefits including lower payments, a shorter repayment term, and interest subsidies.

Prevent President Biden from moving forward with any other new repayment plans

This effort would have included the administration’s overhaul of the former REPAYE plan into what is now known as the SAVE plan.

The bill also “Prohibits the Secretary from offering any repayment incentives beyond the 0.25% interest rate deduction for new borrowers.”

Prohibit the administration from enacting certain new federal regulations or executive actions

The restriction of prohibiting the administration from enacting new federal regulations or executive actions applies to those related to student loans that would “increase costs to the federal government.” This would include any new federal student loan forgiveness program not expressly authorized by Congress.

Additional impacts of the FAIR Act

• Prohibit PLUS borrowers from accessing IDR plans.
• Prohibit the administration from establishing new deferments.
• Provide borrowers in default on their federal student loans with a second chance to rehabilitate those loans and restore them to good standing.
• Provide targeted student loan forgiveness for borrowers who, “already paid back more than they originally owed taxpayers in principal and interest.”

House Republicans have been especially critical of Biden’s student loan forgiveness plan and the new SAVE plan, arguing that the programs are far too costly. And they have argued that the Biden administration’s new flexibilities for federal student loan forgiveness under other programs – such as the PSLF Waiver and the IDR Account Adjustment – have gone too far in terms of breadth and cost. 

Democrats unveil their own student loan reform measures

Meanwhile, House and Senate Democrats have unveiled their own proposed legislation to reduce federal student loan debt. Earlier this month, U.S. Representative Pramila Jayapal (D-WA) and U.S. Senator Bernie Sanders (I-VT) introduced the College for All Act, which would guarantee tuition-free community college for all students; in addition, this would also be available to students at public colleges and universities, given their household earns under $125,000 with a single parent, or $250,000 with married parents. The bill would also dramatically increase the size of Pell Grants, a type of federal aid that does not have to be repaid. 

“Today, this country tells young people to get the best education they can, and then saddles them for decades with crushing student loan debt. To my mind, that does not make any sense whatsoever,” said Sen. Sanders in a statement. “In the wealthiest country in the history of the world, a higher education should be a right for all, not a privilege for the few. It is absolutely unacceptable that hundreds of thousands of bright young Americans do not get a higher education each year, not because they are unqualified, but because their family does not have enough money.”

Student loan reform may depend on Supreme Court ruling on student loan forgiveness

How President Biden and lawmakers in Congress address student loan reform may depend in part on how the Supreme Court rules on Biden’s sweeping student loan forgiveness plan. That plan, if allowed to go forward, may result in millions of borrowers receiving $10,000 or more in student loan forgiveness. A Supreme Court ruling is expected to be released as soon as this week.

Regardless of what the Supreme Court decides, there are elements in both plans that could have bipartisan appeal. Advocates for borrowers have argued that current default resolution options are limited and problematic, so a second chance at loan rehabilitation could be widely embraced. And increasing Pell Grants could be acceptable for some Republicans.

However, the parties remain far apart on issues like IDR and student loan forgiveness. And given the current partisan environment and the run-up to an election year, a compromise might prove to be elusive.