As House Republicans seek to identify spending cuts to finance President Donald Trump’s tax reductions, they have proposed measures that could lead to higher federal student loan payments for millions of borrowers.
Republican legislators are anticipated to utilize the budget reconciliation process to implement significant reductions in the federal budget. Their projections suggest that reforming the student repayment plan could yield savings of $127.3 billion over a decade.
🚨 The timeline for these potential changes remains unclear, and it is likely that the final Republican proposal will differ from the initial suggestions.
If the GOP’s plans to modify the repayment program are successful, the average student loan borrower could see their monthly payments increase by nearly $200, according to preliminary estimates from The Institute for College Access & Success (TICAS).
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Updated Figures
Under the proposed Republican plans, the average borrower’s monthly payment could rise from $95 to $288, as calculated by TICAS. Researchers at TICAS assessed the monthly payments under the GOP’s suggested repayment terms, both currently and historically.
They contrasted these payments with what borrowers would owe under the Biden administration’s new income-driven repayment option, referred to as the Savings for a Valuable Education (SAVE) plan.
A report from the Center for American Progress indicates that if Republican lawmakers were to enact the repayment terms outlined in the bill introduced by Rep. Virginia Foxx, R-N.C., which garnered support from numerous House Republicans last year, the typical student loan borrower with a bachelor’s degree could end up paying approximately 50% more over time compared to the SAVE plan.
Conversely, graduate students might pay 10% to 15% less than they would under the SAVE plan.
A Challenge to the SAVE Plan
Republicans have shown interest in consolidating the various income-driven repayment (IDR) plans for student loan borrowers into a single option.
IDR plans were established by Congress in the 1990s to enhance affordability for borrowers by capping monthly payments at a percentage of their income and forgiving any remaining debt after a specified duration, typically 20 or 25 years.
➡️ As of September 2024, over 12 million individuals were participating in these plans.
Former President Joe Biden’s SAVE plan, currently facing legal challenges, offered the most favorable terms among IDR plans to date.
It significantly reduced monthly payments for many borrowers and provided expedited loan forgiveness for those with lower balances. According to an analysis by the Penn Wharton Budget Model at the University of Pennsylvania, the SAVE plan could incur costs of up to $475 billion over the next decade.
This made it a focal point for Republicans, who contended that taxpayers should not be responsible for subsidizing loan payments for individuals who have pursued higher education, as noted by experts.
Critics also accused Biden of attempting to circumvent the U.S. Supreme Court’s June 2023 ruling that deemed his broad debt cancellation initiative unconstitutional through the SAVE plan.
Increased Borrowing
Consumer advocates highlight that many families now find it necessary to incur loans to finance their children’s college education and will require more affordable repayment options.
Research indicates that student loans hinder individuals from starting businesses, purchasing homes, and even starting families.
In addition to potentially abolishing the SAVE plan and limiting borrowers to a single IDR option, Republican lawmakers may also eliminate the loan forgiveness currently available to borrowers after a designated period within these plans.
📌 If you need advice on student loans and upcoming planning for you or your children, please feel free to contact us at info@wavetax.us