Congress is deliberating a sweeping bill that could fundamentally alter the landscape of student loan repayments. While the proposed College Cost Reduction Act promises to slash federal spending by up to $280 billion over the next decade, critics argue it could saddle borrowers with higher monthly payments and restrict access to higher education.

Balancing the Budget with Borrowers’ Futures

This comes as President Joe Biden’s efforts to provide widespread student loan relief face legal and political challenges. The bill, spearheaded by Republican Representative Virginia Foxx of North Carolina, proposes significant changes to Pell grants, income-driven repayment plans, and federal loan programs.

Supporters of the legislation tout its potential to reduce the national deficit. The Committee for a Responsible Federal Budget estimates savings of $155 billion from adjustments to Pell grants and student loan programs and another $127 billion from replacing Biden’s SAVE income-driven repayment plan. The plan has faced judicial scrutiny but remains a cornerstone of Biden’s approach to alleviating student debt burdens.

The bill seeks to double Pell Grant funding for juniors and seniors on track to graduate, a move proponents say would make higher education more accessible for low-income students. However, it would also require borrowers to adhere to a standard 10-year repayment plan, potentially increasing monthly payments for many.

Limits on Borrowing and Rising Concerns

A key provision of the bill is the elimination of PLUS loans for graduate students and the Federal Supplemental Educational Opportunity Grant (FSEOG). Additionally, the legislation imposes strict borrowing caps: $50,000 for undergraduates and $100,000 for graduate students.

These caps could disproportionately affect students pursuing expensive professional degrees, such as law and medicine. Michael Ryan, a finance expert, noted that while high-income borrowers in these programs might benefit from capped repayment obligations, others could struggle to cover costs without access to PLUS loans.

The proposal also seeks to hold colleges accountable for unpaid loans, a measure that some worry could inadvertently raise tuition. Alex Beene, a financial literacy instructor at the University of Tennessee, cautioned that institutions might increase costs to cushion against potential liabilities.

Opponents of the bill argue that it undermines its own goal of making college more affordable. Jessica Thompson, Senior Vice President at The Institute for College Access & Success (TICAS), called the legislation a “misguided approach” that would increase financial burdens for many students and graduates.

Critics also point out that the legislation may disproportionately harm low-income and first-generation students, who often depend on federal aid to pursue higher education. While doubling Pell grants for upperclassmen is a step forward, the elimination of PLUS loans and strict borrowing caps could limit access for students at all income levels.

Can the Bill Pass?

With former President Donald Trump reentering the White House and Republicans controlling the House, the chances of the bill’s passage have increased. Kevin Thompson, CEO of 9i Capital Group, noted that the incoming administration might view the bill as a fiscal win.

However, bipartisan consensus may prove elusive. Democrats have expressed concerns about the bill’s potential impact on low-income students, while Republicans favor its cost-cutting and accountability measures. Substantial revisions may be necessary to garner enough support from both sides of the aisle.

If enacted, the College Cost Reduction Act could force significant changes in how students and universities approach financing higher education. By eliminating PLUS loans, the bill aims to push colleges to reduce tuition. But as Michael Lux pointed out, this strategy might only benefit families who can afford to pay out of pocket or secure private financing.

In contrast, middle-income and low-income families could find themselves squeezed. Without PLUS loans, students may turn to high-interest private loans, which lack the flexibility and consumer protections of federal programs. For graduates in debt-intensive fields, options to refinance medical student loans or other high-balance debts might become increasingly critical to manage repayment under new federal caps.

The debate over the College Cost Reduction Act highlights a broader struggle to balance fiscal responsibility with equitable access to education. While the proposed legislation could save billions and impose accountability on colleges, it also risks widening the gap between those who can afford higher education and those who cannot.

For now, borrowers face uncertainty as Congress continues its deliberations.