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 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!

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