Washington, D.C. - GradFin is closely tracking new legislation (The PROSPER Act) that was approved by the U.S. House Education Committee. The legislation would make several significant changes to the federal student loan program, including capping student loan borrowing limits and modifying repayment programs. The last time any major changes were made to federal student loan laws was in 2008. This post by GradFin is a quick status update and a review of the major changes that would take place if the legislation were signed into law by the President.
Status Update - On December 13, 2017, the House Committee on Education and Workforce passed the PROSPER Act. This is the first step in the reauthorization process; however future action is required in order for these changes to be finalized. The House of Representatives is expected to pass the legislation on the floor by the full House in early 2018. It is unclear if the Senate will take action on a similar bill. In order for new legislation to be passed into law, the Senate and the House must pass identical legislation and send it to the President for his signature. For those interested in learning more about the impact of the proposals on the federal loan program, please read more about these changes below or reach out to GradFin to learn more.
New borrowing limits - The PROSPER Act proposes to cap borrowing limits for several federal loan programs.
Only Two Repayment Options - New Federal loans would come with only two repayment plans, down from the nine that exist today. The first option would be the standard, 10-year loan repayment plan of 120 equal payments and the second option would be an income-based repayment program. Under the new income-based repayment plan, borrowers would pay 15 percent of their discretionary income and the minimum payment allowed would be $25 a month. These borrowers would be required to repay the same amount of principal and interest as they would have repaid under the 10-year standard plan, so there would be no forgiveness of the principal. However, interest loans enrolled in the income-based repayment plan would be capped at whatever the borrower would have repaid under the standard 10-year plan, and any interest that accumulates in excess of that amount would be canceled.
Important Note: Current Federal "Direct" loan borrowers would continue to be eligible for all the income-based repayment options that exist today. Therefore, if you are already enrolled in a plan today, you would presumably be grandfathered in and be able to stay in this plan in the future.
Public Service Repayment Plan - Under the PROSPER Act, any new loans (known as "ONE Loans") issued by the federal government would not be eligible for the Public Service Loan Forgiveness Program, but "Direct" loans would continue to be eligible through the life of the loans. Direct Loans would be phased out after 2019.
Financial Aid Counseling - The PROSPER Act would require all recipients of federal student aid to undergo enhanced financial aid counseling. More specifically, the bill would require loan counseling to be tailored to a borrower’s individual situation as well as improve the timing and frequency by requiring annual loan counseling before an individual signs on the dotted line so the borrower, both students and parents, have the most up-to-date information.
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