This Week In Washington
New interest rates for federal student loans went into effect on Monday for the 2019-2020 academic year. For Unsubsidized graduate loans, the interest rate is now 6.08 percent, and for Grad PLUS loans it is 7.08 percent. These rates are a decrease from last year’s, and rates are fixed for the life of the loans. For information on all federal student loan rates, see our fact sheet.
On Monday, the U.S. Department of Education (ED) officially rescinded the Obama-era Gainful Employment (GE) regulations. Recall, these regulations remove federal student aid eligibility from certain institutions, mostly for-profits, that graduated students with high debt relative to their subsequent earnings. In place of GE, ED wants to update the College Scorecard with additional earnings data. Rescinding GE is expected to cost the government $6.2 billion over 10 years due to increased federal loans and Pell grants going to students attending previously barred institutions.
Republican education committee leaders made no official statements about the regulations but have previously expressed displeasure with the GE. Democratic leaders in the House and Senate education committee blasted the repeal. House chairman, Bobby Scott (D-VA-03), said that without an adequate replacement, repeal will “prop up low-quality for-profit colleges at the expense of students and taxpayers.” Senate Ranking Member, Patty Murray (D-WA), called the GE rescission “a gift to predatory programs.” The GE regulations are scheduled to go into effect on July 2, 2020, but ED has indicated that it will implement the rules early, effectively repealing the regulations now.
This week, the Internal Revenue Service (IRS) released a Notice of Proposed Rulemaking related to the new 1.4 percent tax created by the Tax Cuts and Jobs Act on the "net investment income" of certain institutions of higher education. The tax will be imposed on private colleges and universities with at least 500 tuition-paying students and assets of at least $500,000 per student. The regulations make clear that more than just endowments (e.g., income such as capital gains, interest, rents, royalties and dividends) may be taxed. The proposed regulations offer guidance to schools on how to determine whether they are subject to the tax and how to calculate the amount they owe. You may comment on the proposed rule until October 1, 2019.
Senator Cory Booker (D-NJ) sent a letter to the Federal Reserve Bank of New York asking it to “assess the effects of racial disparities on the holistic financial wellbeing of borrowers of color and their families.” At the undergraduate level, he says, “African American college graduates owe $7,400 more in debt on average than their white peers,” and that “alarming difference is a crippling weight on the shoulders of borrowers of color.” While Senator Booker focuses on undergraduates, AccessLex Institute found similar borrowing and debt disparities between black and other borrowers at the graduate level in our recent report: Examining Graduate Lending: Access vs. Private Lending.
News You Can Use
The Institute for College Access and Success advocates for allowing federal student loan borrowers in income-driven repayment to give “multi-year” consent to the IRS to provide ED with borrowers’ income to reduce the burden of annual recertification.
The Education Commission of the States has tracked state legislation that hopes to address student indebtedness through financial literacy and other education programs at the K-12 and postsecondary education levels.
The following bills have been recently introduced for consideration by the 116th Congress (2019-2020):
H.R. 3418 – Protecting Our Students by Terminating Graduate Rates that Add to Debt (POST GRAD) Act [Rep. Judy Chu (D-CA-27), et al.] would reinstate eligibility for graduate and professional students to receive Federal Direct Subsidized Loans, which ended in 2011. Read AccessLex Institute’s letter of support here.
H.R. 3519 – Better Service to Borrowers Act [Rep. Kim Schrier (D-WA-8), et al.] would require ED to create a common loan servicing manual for federal student loan servicers. Read AccessLex Institute's letter of support here.
H.R. 3547 – Students and Young Consumers Empowerment Act [Rep. Suzanne Bonamici (D-OR-1) and Rep. Katie Porter (D-CA-45)] would mandate the Consumer Financial Protection Bureau restore the Office for Students and Young Consumers and establish a “Student Loan Borrower Advocate” to run the Office.
S. 2015 – Student Loan Disclosure Modernization Act [Sen. Tim Scott (R-SC) and Sen. Joe Manchin (D-WV)] would direct ED to create an easy-to-understand disclosure form outlining Direct Loan borrowers’ fiscal obligations and legal rights before disbursing a new loan. S. 2015 is the Senate companion bill to H.R. 1161, which was previously introduced by Rep. Emanuel Cleaver (D-MO-5). Read AccessLex Institute’s letter of support here.
H.R. 3598 | S. 2049 – Federally Requiring Earned Education-Debt Discharges for Veterans Act (FREED Vets Act) [Rep. Conor Lamb (D-PA-17), et al. | Sen. Jack Reed (D-RI) and Sen. Johnny Isakson (R-GA)] would require ED to automatically discharge federal student loan debt for eligible permanently disabled veterans.