Many companies featured on Money advertise with us. Opinions are our own, but compensation and
in-depth research may determine where and how companies appear. Learn more about how we make money.

Published: Dec 01, 2017 11 min read
University Campus with Crowd of Students
Jon Lovette—Getty Images

Republicans in the U.S. House of Republicans released their effort Friday to reauthorize the federal law overseeing higher education, proposing several drastic changes for the ways students access federal student financial aid.

The higher education law has been overdue for renewal, and this opening proposal from House Republicans is likely the first in a long back-and-forth between lawmakers before the GOP education bill advances to a final version.

The 542-page bill, named the PROSPER Act, covers everything from free speech and sexual assault on campus to Free Application for Federal Student Aid (FAFSA) and consumer tools for looking up higher education outcomes. On the topic of paying for college, it calls for reducing the number of federal loan types, capping the amount graduate students and parents can borrow, and changing the current suite of loan repayment options.

The White House is also expected to release its goals for the higher education law Friday, a POLITICO reporter noted, with a focus on streamlining loan repayment, opening up Pell grants for shorter, job-training programs, and creating a risk-sharing system for colleges based on their loan repayment rates.

Some parts of the far-reaching new House bill will be unpopular with college access groups and student advocates. Among them is the killing of a regulation known as "gainful employment," which mainly affects for-profit colleges and requires that graduates be able to find jobs that pay enough for them to repay loans. Other proposals likely to be unpopular include eliminating loans targeted for low- and middle-income students, and repealing rules that allowed students who'd been misled by colleges to have their loans forgiven—another regulation that largely affected for-profits.

But some of the ideas about paying for college could gain broader support.

Here are seven key areas where changes could radically remake the way students pay for college.

1. There would be big changes ahead for both federal loans and grants.

House Republicans want to simplify student aid by eliminating multiple grants and loans, and replacing them with a single option.

For grants, that option would be the federal Pell grant; the bill would eliminate other, much smaller grant programs such as Federal Supplemental Educational Opportunity Grant. And for loans, a new Federal "One" Loan would replace the federal Direct and Perkins loans available currently. The loan change would eliminate provisions for subsidized loans, which go to needy students and don't accrue interest while borrowers are enrolled in schools.

Recipients would also get their money in a different way. Both the new loans and grants would be dispersed like a paycheck, in equal monthly or weekly installments, instead of being paid as one lump sum at the beginning of each semester, as is the case now.

The formula for interest rates remains the same under the House bill, but the bill would eliminate origination fees—currently 1% for undergraduate borrowers and 4% for graduate students and parent borrowers.

2. Both students and parents would face new borrowing limits.

The act introduces new caps for how much students and their parents are allowed to borrow.

At the undergraduate level, the limit increases by about $2,000 a year for so-called dependent students (usually those who are still claimed as dependents on their parents' tax returns). In total, these students would be able to borrow about $8,000 more, for a limit of $39,000. For independent students (generally students older than 24), the limit would increase by about $2,750, to $60,250.

One big change from current practice: While the bill would set a higher federal limit for undergraduates, it also would grant some flexibility to let colleges reduce that limit for their own students. A college might choose to limit what students in a particular program could borrow, for example, if median salaries for careers in that field suggest that graduates would be unable to repay the higher amounts.

The bill lowers the limits, however, for federal parent loans, which are frequently criticized for letting parents overborrow. Currently, parents can borrow up to the full cost of education; the program lends to anyone without an "adverse" credit history, such as a recent bankruptcy. That means, in theory, that a parent could take on more than $200,000 for a single child to attend a four-year private college. The new bill would significantly cut that back, introducing annual limits of $12,500 per student, with an aggregate limit of $56,250.

Graduate students would also get borrowing caps, which would be set at $28,500 annually, for a total of $150,000. (One exception is for medical students, who would get a separate, higher limit.)

3. The FAFSA would get at least a bit simpler.

U.S. Education Secretary Betsy DeVos announced this week that the department would be releasing an app that allows students to file the FAFSA from their phones. House Republicans are doubling down on that, writing that mobile app into law. The bill would also allow for the use of older tax information to fill out the FAFSA—something that the Department of Education allowed this year, but would now be written into law.

The bill allows more families to qualify for a simplified version of the form by raising the income limits. Currently, families with an adjusted gross income below $50,000 fill out a shorter form that doesn't ask about financial assets. The bill would increase that limit to $100,000.

Finally, it calls for the Department of Education to continue exploring whether it's possible to apply for financial aid with information already submitted to the federal government on tax returns—in theory reducing the burden on families to report the same information to multiple agencies.

4. Work-study dollars would get calculated differently.

The bill would change the allocation of federal work-study money over the next several years, shifting more funds to schools with greater student financial need and more Pell grant recipients. That would end a formula that is widely considered outdated, which awards a disproportionate amount of money to private colleges with wealthier students.

The bill also eliminates work-study aid for graduate students, limiting it to undergraduates, and would award additional money for colleges with either strong completion rates for Pell grant recipients or strong year-over-year improvements in graduation rates.

5. Grant recipients would get bonuses for heavier courseloads.

Pell grant recipients who enroll in 15 credits per semester—a courseload that puts them on track for four-year graduation—would be eligible for a $300 bonus per term. That's greater than the 12 credits that are usually considered full-time, but students who only take 12 credits during each fall and spring semester would need more than four years to graduate.

Some colleges, states, and higher education organizations have pushed for incentives for students to take 15 credits so they can graduate on time. Others, however, worry that requiring low-income students—who also often work several hours a week—to take 15 credits will do more harm than good.

Pell grant recipients would also receive annual reports outlining how much of the grant they have used and how much they have left.

6. There would be fewer loan repayment options.

There's wide agreement that the current maze of student loan repayment options is too confusing and complex for borrowers to navigate. There's considerable debate, however, on how best to fix that.

House Republicans want to slim eight different plans into two: a standard 10-year repayment plan and one income-based repayment plan. Borrowers in the new income-based plan would have to pay 15% of their take-home income (most plans now allow for 10%), and monthly payments would have to be at least $25 (they can currently be as low as $0). Plus, borrowers would have to pay a total amount equal to what they would have paid under the standard repayment plan, instead of getting a loan forgiven after a set time period, such as 20 or 25 years.

The Wall Street Journal, which first reported on the PROSPER Act earlier this week, said the House bill would also seek to end Public Service Loan Forgiveness, through which employees for state and local governments and nonprofits can have their loans forgiven after 10 years. But while the Trump administration has said it wants to end the program, the bill introduced Friday barely mentions it.

7. Consumers would get more information, even before applying.

Several of the bill's provisions are aimed at increasing transparency for college students and applicants.

The bill would require the Education Department to give high school sophomores an idea of their aid eligibility, for instance, which could help students shape their college search process.

Republicans also want to continue the work carried out by the College Navigator and College Scorecard websites, which currently provide families with information about net price, graduation rates, and loan repayment rates for all colleges. The bill would expand that information to include median salaries and repayment rates by program level, as opposed to only at the college level.