The House Reconciliation Bill: Leaving No Loan Unturned

Last week, House Republicans released—and the Education and Workforce Committee passed—the Student Success and Taxpayer Savings Plan, a mammoth bill that overhauls the financial aid, student loan, and higher education accountability systems as part of the reconciliation process. We are in desperate need of holistic higher education reform: The Higher Education Act (HEA) was last reauthorized at the beginning of the Great Recession, almost 20 years ago. Since that time, we have changed our system of federal student lending, witnessed the collapse of Corinthian Colleges and ITT Technical Institute, and experienced a global pandemic. The higher education system, and the patchwork of reforms enacted in response to these and other watershed moments, are fraying at the seams.

The Student Success and Taxpayer Savings Plan, if enacted, would achieve the level of policy change typical of a reauthorization bill. But instead of making a well-considered investment in Americans’ pursuit of higher education and colleges’ ability to provide it—and instead of engaging in bipartisan discussions typical of such a massive package—this bill slashes more than $300 billion from the system, largely to provide tax breaks for the wealthiest Americans. And it does this as part of an expedited process to pass budget-related legislation.

This piece unpacks the student loan repayment provisions of the Student Success and Taxpayer Savings Plan. An initial examination of the bill reveals that many of these reforms will increase confusion and monthly costs for families, penalize the lowest-income borrowers, and be a challenge to implement for the Department of Education (the Department) and its contractors who manage the student loan repayment system day-to-day.

Outside of student loan repayment reform, the bill also makes massive changes to federal student lending and financial aid, provisions that are incredibly unpopular with—and complicated and expensive for—students and families. These reforms would include ending subsidized loans for undergraduate students, ending PLUS loans for graduate and professional students, and substantially altering annual and aggregate loan limits for undergraduate, graduate, and parent borrowers. While these provisions are outside of the scope of this already-very-lengthy piece, they are important to keep in mind, given that the entire package of reforms is intertwined and will intersect in families’ finances in ways that are not yet entirely clear. For example, a new process for defining the median cost of college means that a student’s eligibility for loans may change unpredictably from year to year—even when colleges meet the maximum total price guarantee requirements in the bill—making it hard to plan for college, let alone anticipate repayment.

To understand the changes the Student Success and Taxpayer Savings Plan makes to the student loan system, we must consider borrowers’ current options. Today, there are more than 42 million Americans with federal student loans, and these borrowers collectively owe almost $1.7 trillion. More than 30 million are in repayment, meaning they are not in school, in a short grace period following enrollment, or in default on their loans.

When borrowers enter repayment, they currently have access to a dizzying array of repayment plans, each with different terms and conditions. Plans fall into two categories:

• Fixed payment plans, including the Standard, 10-year plan (which borrowers are placed into if they do not choose another plan), a 10-year plan with gradually increasing payments, and Extended plans, which spread payments over up to 25 years for those with more than $30,000 in debt. About 20 million borrowers are currently enrolled in a fixed payment plan.
• Income-driven repayment plans, which base payments on borrowers’ incomes and family sizes. More than 13 million borrowers are enrolled in one of five income-driven repayment plans that were created over time using two different statutory authorities (Figure 1). Borrowers pay a percentage of their “discretionary income”—their adjusted gross income (also referred to as annual income in this piece) minus a protected amount based on the federal poverty guidelines for their family size. They must recertify for these plans annually, and payments change from year to year as borrowers’ financial situations fluctuate. Any remaining balance is forgiven after a set number of years, depending on the plan and if a borrower took out loans for a graduate education.

Over the last few years, the repayment system has been in a state of flux, adding a new element of confusion on top of preexisting complexity. For example, this year, borrowers are experiencing the consequences of missed payments for the first time in five years after a multi-year, pandemic-related payment pause and a one-year “on-ramp” period meant to ease borrowers back into repayment. The Department is in the process of turning involuntary collections back on for borrowers in default, and millions more borrowers will potentially default in the coming months.

At the same time, the Saving on a Valuable Education (SAVE) plan—created in a regulation that also took initial steps toward streamlining the repayment system—is the subject of an ongoing court battle, and the Department of Education is currently not permitted to implement this plan (and pieces of other income-driven plans). As a result, borrowers enrolled in SAVE are in a forbearance, or a paused payment status, during which they do not have to make payments and interest is not accruing, but they also are not getting credit toward eventual forgiveness under an income-driven plan or through the Public Service Loan Forgiveness (PSLF) program. Relatedly, there is a backlog in processing applications for income-driven plans.

While the Student Success and Taxpayer Savings Plan takes steps intended to streamline the number of repayment plans and their terms, the bill instead adds layers of complexity. It creates different repayment options for current borrowers—defined largely as those who borrowed before July 1, 2026—and future borrowers, those who borrow on or after that date, options that differ in multiple ways from what borrowers have access to today. And it creates an environment in which many current borrowers will first be forced into a new income-driven plan that will significantly raise monthly payments and then may be eligible for another new income-driven plan with dramatically different terms months later. As a result, many will transition among plans twice within 18 months of the bill’s passage. Finally, it requires almost all future updates to the loans system to be made through Congress, often an impossible feat when a quick change is needed.

While the House reconciliation bill allows current borrowers to retain access to their existing fixed payment plans, it eliminates all income-driven plans created under the income-contingent authority (the Income Contingent Repayment (ICR) plan, Pay As You Earn (PAYE) plan, and the SAVE plan—as laid out in the top three rows of Figure 1).

It then amends income-based repayment to create a single IBR plan—which I refer to as “Amended IBR” (Figure 2). The Department of Education is directed to place borrowers currently enrolled in any income-driven plan into Amended IBR within nine months of the passage of the bill, meaning that, at least temporarily, Amended IBR will be the sole income-driven option for current borrowers. (Current borrowers will eventually also be able to enroll in a brand new income-driven plan, which is described below.)

Amended IBR would raise monthly payments for many borrowers currently in an income-driven plan by 50% or more. Amended IBR sets the percentage of discretionary income that borrowers owe to 15%, which is at least 50% higher than the 5-10% currently charged in a number of current plans (Figure 3). It also sets the number of years of payments required before forgiveness to 20 for those with undergraduate loans and 25 for those with at least one loan from a graduate program, which adds 5 years of required payments for many borrowers (and more for some borrowers enrolled in SAVE). Finally, Amended IBR eliminates the Standard plan payment cap—a provision that limits monthly payments on several current plans to what borrowers would owe on the Standard plan. This means that, for those at the higher ends of the income distribution, payments might grow by more than 50%.

Today, Parent PLUS borrowers only have access to one income-driven plan—ICR—and only after they consolidate their loans. Notably, the Student Success and Taxpayer Savings Plan permits current Parent PLUS borrowers who have already consolidated and enrolled in ICR to access Amended IBR. However, the remaining current Parent PLUS borrowers are then stuck with only fixed payment options moving forward, leaving many without a release valve. Similarly, future borrowers with a Parent PLUS loan or a consolidation loan that paid off a Parent PLUS loan can only make payments on a new fixed-payment plan, which is not eligible for PSLF, as described below.

Borrowers with loans made or consolidated on or after July 1, 2026 will only have access to two repayment options, both newly-established under the Student Success and Taxpayer Savings Plan. The first plan is a tiered, standard plan with fixed payments (which I will refer to as the “Tiered Standard” plan to differentiate it from the current Standard plan described above). Payments made on the Tiered Standard plan are not eligible for PSLF.

On the Tiered Standard plan, borrowers make fixed payments over 10-25 years, depending on their total outstanding principal balance:

• Total outstanding principal balance less than $25,000: 10 years
• Total outstanding principal balance $25,000 - $49,999: 15 years
• Total outstanding principal balance $50,000 - $99,999: 20 years
• Total outstanding principal balance $100,000+: 25 years

This Tiered Standard plan essentially rolls the current Standard, Graduated, and Extended plans into one plan and has the potential to simplify the system, especially since there are no penalties for paying balances down faster than required. However, as the Tiered Standard plan stands today, borrowers who previously had the option to spread payments out over 25 years (those with more than $30,000 in debt) would now be required to fully repay in 15 years, which would result in higher monthly payments but ultimately less paid over the life of the loan. An exploration of the distributional impacts of this policy would be helpful to ensuring borrowers have an appropriate suite of options.

While current borrowers (those who took out loans before July 1, 2026) can access the existing fixed payment plans, Amended IBR, and a new income-driven repayment plan, which I describe below, they cannot access the new, Tiered Standard plan unless they take out a new loan on or after July 1, 2026. (See Figure 6 for information about borrowers’ eligibility for repayment plans.) If current borrowers do take out new loans, they are required to repay all of their loans under the same plan—either the Tiered Standard Plan or the new income-driven plan described in the next section. Accessing more aid essentially forces borrowers’ old loans into new plans, which for many will include less beneficial terms.

The second option available to future borrowers is an income-driven repayment plan called the Repayment Assistance Plan. (I will refer to this plan as RAP, although one could make the argument that The Repayment Assistance Plan could have the acronym TRAP. I don’t make the rules.) This plan is made under the income-based repayment authority, and RAP payments count toward PSLF, as do payments made in current income-driven plans.

There are a number of elements in this plan that are different from or do not exist in the currently available suite of income-driven plans, and many of them result in higher payments for the lowest-income borrowers.

LONGER TIME TO FORGIVENESS: RAP would forgive remaining balances after 30 years of payments for all borrowers—5-10 years longer than existing income-driven plans (and even longer for some lower-balance borrowers enrolled in SAVE). Borrowers would pay a percentage of their adjusted gross income based on the level of that income:

• Annual income of not more than $10,000: Minimum payment of $10 monthly/$120 annually
• Annual income of $10,001 - $20,000: 1% of income (although borrowers would pay the minimum payment until their incomes reach $12,001)
• Annual income of $20,001 - $30,000: 2% of income
• Annual income of $30,001 - $40,000: 3% of income
• Annual income of $40,001 - $50,000: 4% of income
• Annual income of $50,001 - $60,000: 5% of income
• Annual income of $60,001 - $70,000: 6% of income
• Annual income of $70,001 - $80,000: 7% of income
• Annual income of $80,001 - $90,000: 8% of income
• Annual income of $90,001 - $100,000: 9% of income
• Annual income of $100,001+: 10% of income

While those with higher incomes will repay their balances faster, the lowest income borrowers—those who are least likely to have received a return on their higher education investments—are most likely to be trapped in repayment for extended periods.

MINIMUM PAYMENT: Setting a minimum payment (of any amount) creates a tradeoff between keeping the most vulnerable borrowers out of default and ensuring borrowers are connected to the loan system. Today, borrowers with incomes under a certain threshold (100% - 225% of the federal poverty guidelines) are permitted to make $0 monthly payments on income-driven plans. RAP has a minimum monthly payment of $10 for all borrowers, which would be a major shift in how income-driven plans work, and there are a host of dynamics that policymakers should consider.

Those who owe and make the least—the borrowers currently eligible for $0 payments—are most likely to default and remain trapped there while the government collects relatively little. These same borrowers are also the least likely to know about tools to help them stay on track in repayment, such as income-driven repayment plans. Accessing these plans is an important default prevention tool, especially because borrowers can opt into data sharing, allowing the IRS to share limited tax information with the Department of Education to both streamline getting into a plan and automate annual recertification. This process works more efficiently if borrowers are eligible for $0 payments, and the ability for borrowers to make $0 payments also allows servicers to target their support and resources more effectively.

Creating a mechanism to keep borrowers connected to the loan system (or at the very least to opt into data sharing) is also important, given that borrowers who have not yet opted in could fail to recertify for income-driven plans in the future and face subsequent spikes in their payments. In addition, many of those currently making $0 payments will owe money over time as their incomes rise. A connection with the system would help ensure they do not miss these payments when they become due. Having a reliable way to contact borrowers is also important for communicating with them about programs for which they might be eligible. For example, in 2022, the Biden administration launched the temporary Fresh Start program, which allowed borrowers to more easily exit default, but accessing the contact information for many borrowers in default was a challenge.

A student loan system that utilizes a minimum payment as a mechanism to keep borrowers connected must consider the consequences of nonpayment. Under the proposed bill, missing $90 in payments (missing the $10 minimum monthly payments for the nine months it takes to default), sends the lowest-income borrowers down a path to not only have their federal benefits garnished but also to have far more than $90 taken from their Social Security and the Earned Income Tax Credit payments. A less punitive system of default—including one that has more capacity to screen borrowers who might be eligible for discharges—or a different means of ensuring borrowers are connected, would better balance the tradeoffs outlined above.

NO PROTECTED INCOME: RAP’s payment schedule does not include protected income, which means that borrowers start making payments on their first dollar of income, leaving less for household needs. The current income-driven repayment plans base payments on a borrower’s discretionary income. They protect a certain percentage of income—between 100% - 225% of the federal poverty guidelines—from being counted toward payments to ensure borrowers can meet their basic expenses before repaying their student loans.

The lowest income borrowers are better off under a plan that protects a portion of income, even if that plan charges a higher percentage of discretionary income. For example, a single borrower in PAYE, where 150% of the federal poverty guideline is protected, would start making payments once their annual income was above $23,475. That same borrower would start making payments on their first $1 of income under RAP, and those making just $12,001 per year—approximately 75% of the federal poverty guidelines and half of what is currently required under PAYE—would begin paying more than the minimum.

These low-income families are likely eligible for safety net benefits, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP), meaning the government has determined that they do not earn enough to meet their basic expenses. Yet the Student Success and Taxpayer Savings Plan is requiring them to make payments under RAP. This decreases the effectiveness of taxpayer-funded benefit programs: Federal dollars being offered with one hand are essentially being taken away by another.

At the same time, the House bill eliminates economic hardship deferments and unemployment deferments, providing fewer options for those experiencing financial distress and struggling to make payments. (Economic hardship deferments count toward forgiveness in current income-driven repayment plans. The federal regulation that created the SAVE plan, currently under an injunction, also permits unemployment deferments to count toward income-driven repayment forgiveness.)

TIERED REPAYMENT AMOUNT BY INCOME: RAP’s payment schedule creates a series of cliffs that penalize and disincentivize small increases in income. While RAP ensures those with lower incomes pay lower percentages of that income, it was not designed like the U.S. tax code, which taxes different portions of a taxpayer’s income at different rates. In RAP, when a borrower’s income increases by as little as $1 into the next income tier, the borrower’s entire income, instead of just the marginal dollar, becomes “taxed” at the higher rate.

For example, a single borrower who makes $79,999—close to the median for someone with a college degree—would pay 7% of their income, or $467/month, while a similar borrower making $80,001 would pay 8% of their income, or $533/month. A $2 increase in annual income would lead to this borrower owing approximately $800 more annually toward their loans. Similar jumps happen at the edge of all of the income bands in RAP (Figure 4). A $2 increase in income for a borrower with the typical income for someone who did not complete a degree or credential would increase annual payments by $400.

A NEW DEFINITION OF FAMILY SIZE: RAP limits both the people that count toward a borrower’s family size and the dollars that are protected to support additional family members, increasing the amount that families pay on RAP compared to existing income-driven plans. The protected income in existing income-driven plans is calculated based on a borrower’s family size. For example, if a borrower is married, files taxes jointly with a spouse, and has two dependent children, their protected income on PAYE would be 150% (and on SAVE it would be 225%) of the federal poverty guidelines for a family of four.

The current federal poverty guidelines add $5,500 for each additional person in a household, including a spouse, dependent children, and others who primarily receive support from the borrower. Thus, the three additional people in the family of four mentioned above would each save the borrower up to about $70 per month if that borrower was enrolled in PAYE and approximately $50-$100 per month for a borrower with loans in SAVE.

In RAP, only each dependent child or other dependent person (defined as receiving more than half of their support from the borrower) under 17 results in $50 per month being deducted from what a borrower owes. Thus, if our family of four has children who are 17 or older (say, 17 and 18), the RAP payment formula would count the family as a single borrower.

If this borrower were the median college graduate making about $76,000 per year, they would pay $231 per month as a family of four on PAYE, $15-$31 per month as a family of four in SAVE, and $443 per month as a single borrower in RAP (Figure 5). (If both their children were under 17, they would pay $343 per month as a family of three.)

PRINCIPAL SUBSIDY: RAP includes important provisions that ensure balances will decrease over time, removing financial and psychological barriers for borrowers. As is the case in SAVE, on RAP, monthly unpaid interest is not charged to borrowers. (Under income-driven repayment plans, borrowers can have required payments that are insufficient to cover the interest that accrues; their balances grow due to that unpaid interest even as they make payments.) RAP goes beyond SAVE by offering a subsidy for those making on-time monthly payments but whose payments do not cover at least $50 in principal.

EXPANDED ACCESS TO REHABILITATION FOR BORROWERS IN DEFAULT: The Student Success and Taxpayer Savings Plan allows borrowers to rehabilitate their loans twice, providing a critical additional pathway out of default. The bill sets the minimum payment as part of a rehabilitation agreement at $10, consistent with the minimum payment described above. Currently, borrowers can only rehabilitate a loan one time, limiting their ability to exit default, and payments can be as little as $5. When borrowers complete rehabilitation, the record of the default is eliminated from their credit history.

The Student Success and Taxpayer Savings Plan allocates an additional $500 million for the Department of Education’s Office of Federal Student Aid (FSA) for FY2025 and FY2026 to implement the bill. This funding is critical, given that FSA has been flat-funded for the last several years. But implementing these massive changes to the student loan repayment system—at the same time that the financial aid system and accountability systems would also be in the process of being completely overhauled—will be extremely challenging, even with the much-needed dollars provided. At the same time, the Department and FSA have been gutted and lack the staff and capacity to develop content, manage contractors, and ensure this process goes smoothly, including expediting contracts to jump start the work.

Within nine months of the passage of the bill, the Department must develop rules, guidance, and materials around—and its servicers must implement and move more than 13 million borrowers into—the Amended IBR plan (Figure 6). (Notably, the bill exempts the implementation of the Amended IBR plan from the lengthy negotiated rulemaking process.) Many of these borrowers will have higher payments under the Amended IBR plan than they do under their current income-driven plans, and receiving an unexpectedly high bill will prompt borrowers to flood call centers. I would also expect there to be a rush to enroll in existing income-driven repayment plans to get a few remaining months of lower payments and for Parent PLUS borrowers to consolidate their loans and enroll in ICR in the lead up to the implementation date.

While the Master Promissory Note (MPN), including the Borrower’s Rights and Responsibilities Statement, that each borrower signs provides the Department some flexibility to change loan terms to adapt to new laws, I expect that some of the loan repayment provisions of this bill would also face lawsuits, which may slow implementation.

Within 18 months of the passage of the bill, the Department must also develop rules, guidance, and materials around the RAP plan, and presumably also the Tiered Standard plan. While these new plans are intended for future borrowers, current borrowers are eligible to enroll in RAP, and those who are unhappy with their payment terms under Amended IBR may be looking to quickly do so, which means many borrowers will change repayment plans twice in fairly rapid succession. And even though most of the existing plans would be sunsetted under this bill, older plans have to stay on the books until the last borrower is enrolled. As a result, materials from FSA—and customer service representatives—must be able to reference and explain them to borrowers.

Finally, the bill locks the provisions of these plans in place and limits the ability of the Department to adjust repayment plans to meet changing circumstances going forward, requiring a legislative fix when the repayment program needs to be updated or changed, a challenging prospect in the best of times.

The Student Success and Taxpayer Savings Plan expands select benefits for borrowers and takes steps toward decreasing the number of student loan repayment plans. But ultimately, it is a step backward for students, pulling money out of our system of higher education while driving up monthly costs for those who can least afford them. Borrowers, especially those who are most at risk of defaulting on their loans, need repayment plans that are affordable, accessible, and provide relief before they are approaching retirement; the Department needs plans that are easy to implement, especially during a period in which it is being starved for resources; and Americans deserve a robust conversation about the future of higher education.