A Tale of Two Bills: How Higher Education Bills from Both Parties Stack Up

As the year draws to an end and we look forward to a new Congress starting in January, Republican and Democratic lawmakers in the House of Representatives are making it clear where their parties stand on higher education with the introduction of two bills aiming to improve the government’s investment in postsecondary students. Both the Republican led Responsible Education Assistance through Loan (REAL) Reforms Act and the Democratic led Lowering Obstacles to Achievement Now (LOAN) Act seek to make higher education less expensive for borrowers but do so in different ways. What follows is a comparison between each bill and how they stack up.

Public Service Loan Forgiveness

Each bill takes a vastly different approach to the Public Service Loan Forgiveness (PSLF) program — a program that has been plagued with issues since it began accepting applications in 2017. With a view that PSLF is costly and regressive, the authors of the REAL Reforms Act would eliminate the program entirely for new borrowers.

On the other hand, the LOAN Act would make the program more generous and efficient by:

• Reducing the number of qualified payments required prior to forgiveness from 120 to 96
• Counting payments made on loans prior to consolidation and certain forbearances and deferments as qualifying payments
• Eliminating the requirement that borrowers be employed in a public service job at the time of forgiveness
• Requiring the Education Department (ED) to maintain an online portal that provides borrowers with better information on eligibility
• Requiring ED to establish and regularly update a database listing qualifying public service employers

Income-Driven Repayment

Income-driven repayment plans (IDR), which have drawn criticism for being complex and causing loan balances to balloon over time, were addressed in both bills. The REAL Reforms Act would reduce the number of IDR plans and make some changes that would allow borrowers to pay off their loans more quickly, but it eliminates time-based forgiveness which could make repayment more expensive for some struggling borrowers and cause them to take on a lifetime of debt. Specifically, the REAL Reforms Act would:

• Reduce the number of repayment plans from nine to one standard 10-year repayment plan and one IDR plan
• Cap accrued interest to no more than what borrowers would have paid under a standard repayment plan
• Discharge any remaining balance for borrowers who have made payments equal to or in excess of their principal, 10 years’ interest and any interest that accrued during specified deferments
• Include a mandatory minimum monthly payment of $25 for loans made on or after July 1, 2023
• End time-based loan forgiveness under IDR plans

While the LOAN Act is silent on IDR plans, it is important to note that this is likely due to the regulatory overhaul of the program that is currently underway by ED.

Borrower Cost and Loan Terms

A lot of the dialogue around student debt has been about the costs associated with financing higher education. The LOAN Act attempts to addresses these concerns by making loans less expensive. The bill would:

• Eliminate origination fees
• Eliminate interest capitalization
• Lower interest rates on all new federal loans and ensure that they are never more than five percent
• Allow borrowers to refinance loans to take advantage of lower interest rates
• Allow graduate and professional students to exhaust their remaining Pell Grant funds to finance their graduate education
• Provide graduate and professional students with access to subsidized loans>

The REAL Reforms Act mirrors the LOAN Act with a provision that also eliminates interest capitalization, but the similarities end there. The REAL Reforms Act seeks to eliminate the Grad PLUS program for new borrowers and reduce the amount of federal loans that graduate and professional students may borrow to $25,000 per year and no more than $100,000 in aggregate.

While it is unlikely that either bill will be brought up during this Congress given the short amount of time left in the session, both pieces of legislation are messaging bills for the Republican and Democratic higher education agenda and signal what we will see in the new Congress.

Read our statement on the REAL Reforms Act

Read our statement on the LOAN Act.

Read our full set of Higher Education Act recommendations.