Understanding the Implications for Student Loan Payments

In January 2024, House Representative and Chair of the House Committee on Education and the Workforce Virginia Foxx (R-NC) introduced H.R. 6951, the College Cost Reduction Act. The bill would make major changes to postsecondary education costs and how potential students access funding for college.

The College Cost Reduction Act would amend the Higher Education Act of 1965. The new bill isn’t law yet, but if it passes, it could make federal student loan payments more affordable. However, it could potentially also leave some folks repaying debt for their entire lives.

What the College Cost Reduction Act Means for Borrowers

The College Cost Reduction Act aims to stop interest from capitalizing on student loans and remove origination fees. Capitalized interest can significantly impact how much you’ll pay when you enter repayment after leaving school. The bill also suggests doubling the Pell Grant maximum for juniors and seniors meeting graduation requirements.

That said, the act also has some potentially concerning elementals that could hurt students both while attending college and after they leave. For example, PLUS loans for graduate students and parents of dependent students would be eliminated, forcing these borrowers to find alternative funding. This could mean taking out private student loans, personal loans, or home equity loans to pay for school. These options can be more expensive, as independent and dependent students’ parents need to prove their creditworthiness to qualify for the lowest interest rates.

The proposed bill also wants to replace the four existing income-driven repayment (IDR) plans, which base payments on monthly income and family size. After 20 or 25 years of making payments—depending on the IDR plan you choose—your remaining balance would be forgiven.

The new IDR plan would be a “repayment assistance plan,” which would set payments to 10% of the borrower’s annual income above 150% of the federal poverty line. However, under this plan, borrowers would only qualify for forgiveness after paying “the amount of principal and interest owed under the standard 10-year plan.” This change puts lower-income borrowers at a higher risk of defaulting on their loans, hurting their chances of borrowing in the future and potentially trapping them in a cycle of debt for the rest of their lives.

The College Cost Reduction Act and the Incoming-Trump Administration

Given the current Republican majority in Congress, the College Cost Reduction Act is more likely to pass when the incoming-President Trump begins his second term in 2025.

Although Republicans controlled both the House and the Senate during Trump’s first term, he struggled with Republican members of Congress resistant to his policies and an ideologically split Supreme Court. Now the Supreme Court has a conservative majority, and Trump’s allies in Congress have made it clear the party is united and ready to support his second-term agendas.

The Congressional Budget Office (CBO) estimates the College Cost Reduction Act would save $185.5 billion over a 10-year period by eliminating IDR plans under the William D. Ford Federal Direct Loan Program, cutting PLUS Loans, and reducing federal student borrowing.

The Bottom Line

Should it become law, the College Cost Reduction Act would drastically alter education loan borrowing for students and parents. There are some potentially helpful changes, such as the removal of capitalizing interest and origination fees. The bill also has a number of potentially worrisome adjustments, such as eliminating certain federal programs and creating a significant debt burden that some students could spend the rest of their lives repaying.