The student debt crisis is coming to a head this month as collections resume on millions of defaulted borrowers after a pause for much of the past five years.
The federal student loan experiment has not been a success and solutions are hard to come by, but House Republicans are pushing for what could be the best path forward for borrowers now as well as those in the future.
Nearly 25% of current borrowers are in or near default and the program itself is projected to lose billions despite the fact that the federal government assumed the responsibility for issuing student loans to make money.
As part of the massive reconciliation omnibus bill, dubbed President Donald Trump’s “big, beautiful bill,” House Republicans are pitching a sensible path to reducing costs and borrowing limits and making it easier for borrowers to pay back loans.
For current borrowers, the plan offers new terms based on the adjusted gross income of the borrower, provides balance assistance and allows for the chance to rehabilitate their loan again. Currently, rehabilitation (where the borrower is put on a generous repayment plan for a little less than a year to get their loan and credit back on track), can only happen once.
While the balance assistance being offered helps by waiving some unpaid interest and providing modest matching for payments to principal, the plan stops far short of the Biden-era plan to wipe out $189 billion in unpaid loans.
As it should: wiping out nearly $200 billion in student loans was a bizarre scheme where low-income workers, blue-collar workers and workers without college degrees, among everyone else, would bailout those with a much higher earning capacity. It was unfair to those who hustled to pay off their loans. And it would have had disastrous inflationary effects. The Biden plan was absurd on its face, and the Republican plan at least makes sense.
Of course, helping borrowers in default is nice, but it by itself does not address the underlying issue of escalating student loan debt. It’s become a cliche that people default because they got a useless degree in poetry, but the problem is more complicated than that.
Tuition has grown significantly over the years. The free, guaranteed money from the government gives incentive to keep costs high. This has fueled a rise in administrative costs and demand.
The rise of tuition has outpaced inflation and wages, so with each year borrowers are getting weaker return on investment. In the past 20 years, the average cost of in-state tuition at a four-year, public university has risen 141%, while median household incomes have risen just 18%, and inflation rose 65%.
It’s unsurprising that, according to a NerdWallet survey, 30% of borrowers don’t think their college education was worth the debt, especially considering 20% of borrowers said they borrowed more money than they needed just because it was offered.
The Republican plan caps borrowing limits for unsubsidized loans at $50,000 for undergrad, $100,000 for advanced degrees and $150,000 for professional degrees (such as a law degree).
The proposal also requires institutions to put some “skin in the game” by making them liable for a percentage of lost funds, based on “how much of a return on investment the degree provided,” according to a fact sheet provided by the House Committee on Education and the Workforce.
It also reduces the number of repayment options to two: one with set payments and another based on income. This second option differs slightly from the current payment method that is contingent upon income. The main difference is that payments based on income will likely be lower for those who have lower incomes and higher for those with higher incomes.
The plan gets more complicated than that and addresses other issues, but the main point is that the Republican proposal is a dramatic improvement over the current system. With any luck these sensible changes will not be casualties of Trump’s high-risk omnibus strategy.
Matt Fleming is a columnist for the Southern California News Group. Follow him on X @FlemingWords
