Before, During, and After College: Federal Student Loans May Soon Undergo Many Changes

We recently reviewed provisions reduce college prices and increase grants for needy collegians in the College Affordability Act (HR 4676) , now pending before the U.S. House of Representatives. Today we look at how HR 4676 would modify federal student loans.

Improving these loans is essential. The latest data from College Board show them accounting for 87% of all college borrowing and 29% of all financial aid. The Project on Student Debt reports that 65% of undergraduates borrow an average of $29,200 before getting their bachelor’s degrees. And just last week the U.S. Secretary of Education announced 42 million Americans owe $1.5 trillion in federal student loans.

Here are highlights HR 4676’s student loan provisions:

  • Provides More Loan Dollars: Total college costs covered by Federal Direct Subsidized and Unsubsidized Loans continues to shrink because Congress hasn’t increased those loans’ limits in 23 years. But HR 4676 would restore the Federal Perkins Loans Program, which ended in 2017, by making it part of the FDLP. As in the past, institutions would select students for Federal Direct Perkins Loans. Selected undergraduates could borrow up to $5,500 and selected graduate students could borrow as much as $8,000 a year through these loans. Their borrowers would face 5% fixed interest rates, and Federal Direct Perkins Loan interest would be unsubsidized, meaning it would begin building from the day students get Perkins money and enlarge student indebtedness beyond $5,500 and $8,000 a year.
  • Eliminates Loan Fees: HR 4676 would eliminate the federal origination fees of 1.059% to 4.236% currently deducted from various FDLP Loans.
  • Simplifies Repayment: There are eight different FDLP repayment plans. Some complain borrowers can’t understand so many plans. So for those who borrow after July 1, 2021, HR 4676 would eliminate all but the most-used of these plans — Standardized Repayment, which requires the same monthly payments until the debt is fully repaid; and Income-Based Repayment (IBR), which ties monthly payment amounts to borrower income, then forgives anything still owed after 20 years of payments.
  • Federal Private Student Loan Consolidation: The federal government has never consolidated private student loans. That would change if HR 4676 becomes law. Financially needy private student loan borrowers could get federally consolidated private student loan debts with fixed interest rates of 4.53% if borrowed for undergraduate school and 6.08% if borrowed while in graduate school.
  • Limits Repayment Costs for the Financially-Stressed: Interest that builds up while FDLP payments are forborne for any reason or deferred due to financial hardships, Fulbright and graduate fellowship, or unemployment currently gets capitalized — i.e. added to loan principal — when forbearance or such deferments end. This can significantly enlarge federal student loan debts. But under HR 4676, such capitalizing would no longer occur.
  • Improves Parental Debt Management Options: Parents with FDLP PLUS Loans that helped their children pay college expenses are currently excluded from using IBR. HR 4676 would end this exclusion. It would also make parents eligible for loan forgiveness if the children for whom they borrowed suffer total and permanent disabilities.

The House will soon debate and vote on HR 4676. So if you like or dislike these revisions, or think they need to be changed, tell your House member right away! You can get his or her contact information here.

College Affordability Solutions will be closing for the holidays on December 13. But you can contact us by phone email at collegeafford@gmail.com or by phone at (512) 366-5354 before 5:00 pm on that day, or after 9:00 am when we reopen on January 6. Meanwhile, we wish you a joyous holiday season and happy new year!

Before and During College: The U.S. House of Representatives May Vote on The College Affordability Act in the Next Three Weeks!

Last Wednesday’s article laid it out — bachelor’s degrees are fast becoming unaffordable even for middle-class students. Certain personal strategies can ease soaring college costs but, by themselves they’re often not enough.

We Americans generally expect our government to address problems affecting individuals and the nation as a whole. Unaffordable bachelor’s degrees are just such a problem. Today, 56% of America’s good jobs — those paying at least $35,000 for 25-44 year olds; $45,000 and up for 45-64 year olds — go to people with bachelor’s degrees.

And now that brains, not brawn, are the key to global competitiveness, the U.S. is falling behind. Examples: 1.3 million fewer Americans were pursuing college degrees in 2017 than in 2010. Meanwhile, we’re 13th in “knowledge workers” while our competitor, China, leads the world in them.

Unfortunately, Congress has done little about college affordability. The Higher Education Act (HEA) that governs federal postsecondary Education programs hasn’t been updated in over a decade.

But now the House Education and Labor Committee has produced the College Affordability Act (HR 4676). It would rewrite much of the HEA, and the House may vote it may before Christmas. Here are some ways HR 4676 would help make college more affordable:

  • Create the America’s College Promise Program: States eliminating community college tuition for full-time resident students would receive federal funds equalling about 75% of what they spend to replace that lost tuition. Today, this would result in a full-time community college student living at home paying only $5,700 per academic year at the average community college, just 21% of the average cost of a public 4-year university. Students pursuing associate’s degrees or starting toward bachelors degrees at community colleges would get substantial savings.
  • Pell Grants: HR 4676 would increase Federal Pell Grants to up to $6,695 in its first year, and it’d grow Pell awards with inflation thereafter. Today, America’s lowest-income students would be getting $500 (8%) more in Pell Grants. Financially needy middle-class students would benefit, too, because this would free up some state and institutional grant money for them.
  • TEACH Grants: TEACH Grants go to students in majors preparing them to be highly-qualified teachers in high-need fields in low-income K-12 schools. HR 4676 would double them from $4,000 to $8,000 per academic year. It’d limit them to juniors and seniors, and extend them to those majoring in early childhood education. HR 4676 would make TEACH Grants and maximum Pell Grants pay 53% of the average academic year’s costs at a public 4-year university today. Eliminating freshmen and sophomores would reduce the number of students whose TEACH Grants are converted to expensive federal loans because, ultimately, the students don’t go on to become teachers.

Do you like or dislike these changes? Exercise your right to express your opinion about them to your member of Congress! Find his or her contact information here.

Next Wednesday we’ll cover how HR 4676 would change the federal student loan programs.

Want more information about financial aid programs that make college more affordable? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a no-charge consultation.