As 2025 approaches, millions of student loan borrowers may face significant shifts in their monthly payments due to new federal proposals. The College Cost Reduction Act, introduced by Rep. Virginia Foxx, aims to reduce the national deficit by up to $280 billion over the next decade, but it also includes changes that could make paying off student loans much harder for many borrowers.
Key Changes in the College Cost Reduction Act
The College Cost Reduction Act is designed to reshape the way student loans work, and one of the most notable changes is the elimination of President Biden’s SAVE income-driven repayment plan. Currently, this plan adjusts loan payments based on a borrower’s income, providing flexibility for those struggling to make ends meet. But under the new law, most borrowers would be required to switch to a standard 10-year repayment plan, which could result in significantly higher monthly payments. This change is expected to hit borrowers with lower incomes the hardest, as they may find it even more difficult to keep up with payments.
The proposed bill also introduces borrowing caps for federal student loans. Undergraduate students would be limited to borrowing $50,000, while graduate students could borrow up to $100,000. These caps are designed to curb excessive borrowing, but experts warn that they could have unintended consequences, especially for students in expensive fields like law or medicine, where tuition can far exceed these limits.
The Impact on Borrowers: More Financial Pressure
Jessica Thompson, Senior Vice President at The Institute for College Access & Success (TICAS), expresses concern that these changes would put additional financial strain on borrowers. “The reality is, the College Cost Reduction Act would increase financial burdens and risks for students and borrowers,” Thompson explains. By forcing borrowers to pay off loans faster with a fixed 10-year repayment schedule, many may struggle with higher monthly payments, leading to an increased risk of delinquency or even default.
Pell Grant Boosts: A Double-Edged Sword
One of the few bright spots in the bill is the proposed doubling of Pell Grant awards for juniors and seniors who are on track to graduate. This could help provide some relief for students in their final years of study. However, financial experts like Alex Beene caution that the increase might not be enough to make college more affordable. “Without additional measures to tackle the overall price of education, this Pell Grant boost may not make much of a difference for incoming students,” Beene notes.
Additionally, some experts worry that universities might increase tuition and fees to compensate for the financial pressures the bill could place on them. If this happens, the increase in Pell Grants could be offset by rising costs elsewhere, leaving students with the same financial struggles.
The End of PLUS Loans: What Does It Mean?
Another major provision in the College Cost Reduction Act is the elimination of PLUS loans, which are federal loans for graduate students and parents of undergraduates. Without these loans, some students and families may lose access to affordable federal student loans, potentially pushing them toward higher-cost private loans with fewer protections.
Michael Lux, a student loan expert, warns that without PLUS loans, fewer students may be able to attend college, particularly those who don’t have the means to pay out of pocket or secure private financing. This could make higher education even more out of reach for families who are already struggling.
Rising Interest Rates: A Growing Concern
On top of these changes, federal student loan interest rates have surged to their highest levels since before the Great Recession. As of 2024, undergraduate students face a 6.53% interest rate, while graduate students are dealing with rates over 9%. These higher rates mean borrowers could end up paying hundreds of dollars more each year, further complicating the financial picture for those entering repayment in 2025.
With interest rates on the rise, more borrowers may be tempted to seek private loans, which typically come with fewer protections and higher interest rates. This could leave students in an even more precarious financial position after graduation.
What’s Next: Republican Support and Possible Revisions
The College Cost Reduction Act is moving forward with strong Republican backing, but it may undergo significant revisions before it reaches its final form. Lawmakers from both parties are likely to scrutinize the bill’s provisions, trying to balance the need to reduce the national deficit with the desire to protect students from overwhelming debt.
While the bill is still in the early stages, it’s clear that its potential impact on student loan borrowers could be far-reaching. As these proposals continue to be debated, borrowers should stay informed and be prepared for changes that could significantly affect their financial futures. Whether these changes will ease the burden of student debt or make it harder for borrowers to get ahead remains to be seen, but one thing is certain: 2025 could be a pivotal year for student loans.
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