January 30, 2018
Student loan borrowers may see changes in how they receive federal aid and repay grants with the proposal of a new bill.
On Dec. 1, 2017, the House Committee on Education and the Workforce proposed the Promoting Real Opportunity, Success, and Prosperity through Education Reform Act to the U.S. House of Representatives. The bill outlines several reforms concerning the Higher Education Act that will have a direct impact on students.
The PROSPER Act is part part of the federal government’s five-year, mandatory reauthorization process for financial aid. Some of the main points of the bill discuss limiting federal loan types, restructuring current repayment plans, new loan caps and Pell Grant bonuses.
Reducing federal loan types simplifies Title IV aid programs like work study, loans and federal grants. These programs are simplified “in the form of one grant, one loan (and) one repayment plan,” according to the Association of Community College Trustees.
The bill would also eliminate Supplemental Educational Opportunity Grants, a form of financial aid amounting from $100 – $4,000 for students with exceptional financial need, and federally subsidized student loans. SEOG provides more than $700 million in federal grant assistance annually to low-income students, according to ACCT.
UCCS would lose their $500,000 SEOG grant, which helps approximately 600 students, according to Jevita Rogers, director of Financial Aid and Student Employment. Since UCCS is a state public institution, the school only has federal grants for students.
“In the big picture of life, we think it sounds great that we are just going to do one loan and one grant; however, (House Committee on Education and the Workforce) is not talking about increasing (funding of) any grants,” Rogers said.
From 2012 to 2017, the number of students receiving financial aid increased from 7,318 to 8,875. The annual cost amount has increased from $77,509,432 to $105,365,788 according to Rogers.
The interest on Subsidized loans is covered by the government while the student is enrolled, at least half-time, in college. Out of her current 8,157 students on financial aid, about 4,000 of them have subsidized loans, said Rogers.
Both in-state and out-of-state students receive SEOG; however, nonresident students receive an increased amount of SEOG due to paying a higher cost for education.
Many out-of-state students depend on subsidized loans to help manage tuition, fees and housing. Eliminating subsidized loans may put a strain on students, according to Rogers.
“So, if all of a sudden these out of state students don’t have this program, it might be highly unlikely that they choose to come here,” she said.
Payment plan reforms
The PROSPER Act also reforms current repayment plans for student loans. The new bill aims at limiting the current number of repayment plans available to students down to two main plans: a standard 10-year repayment plan or an Income Based Repayment plan.
According to ACCT, the repayment rate under the bill’s IBR plan is set at 15 percent of discretionary income with a minimum payment of $25 per month. With this plan, there are several repayment tiers students can fall under based on the total amount they borrowed.
Elimination of loan forgiveness
The PROSPER Act also seeks to eliminate loan forgiveness for new borrowers.
For students who had loans before PROSPER passed, they will still be able to fall under the Public Service Loan Forgiveness, Pay as You Earn and Revised Pay As You Earn. These programs are income-based repayment plans that allow students in financial distress to repay their loans as they earn money.
With the PROSPER Act, new borrowers will not be given the option of loan forgiveness with Federal ONE Loans, according to ACCT.
The National Association of Student Financial Aid and Administration believes that getting rid of provisions that allow loan forgiveness can hurt borrowers, calling the provisions a “vital protection that prevents borrowers from repaying a loan into perpetuity.”
But students should be too concerned, according to the ACCT. The amount that new borrowers would have to repay would be capped under the single IBR plan.
“The total amount paid over the IBR repayment period cannot exceed what the student would have owed in principal and interest had they enrolled in 10-year standard repayment,” according to the ACCT.
Loan caps rise
Another major point of the PROSPER Act is introducing new loan limits for yearly and aggregate loans.
The new bill would increase the cap on annual loans from $5,500 – $7,500 to $7,500 – $9,500.
For independent students, the limit will increase from $9,500 – $12,000 to $11,500 – $14,500 annually. Lifetime limits for dependent undergraduate students also increase from $31,000 to $39,000, and from $57,500 to $60,250 for independent students.
For parents and graduate students, current borrowing caps reflect the tuition costs, according to ACCT. The PROSPER Act would limit annual caps for new borrowers to $28,500 for graduate students and $12,500 for parents. Lifetime caps would be $150,000 for grads and $56,250 for parents.
Pell Grant reforms
The new PROSPER Act also reforms Pell Grants by rewarding students who are on track to complete 30 credits or more during the typical fall and spring semesters. The incentive to adopt the course load would be an additional $300 in funds, according to ACCT.
NASFAA believes this reward program would help “incentivize on-time or accelerated completion of a program.” NASFAA believes that this approach would encourage students to enroll in additional coursework but would not punish those who may not be able to adjust to the schedule or 15 credit workload.