GOP Student Loan Overhaul Puts Limits on Borrowing

House Republicans have introduced their plan to overhaul the U.S. student loan system.

The measure, introduced Monday (April 29) by members of the House Education and Workforce Committee, calls for caps on federal student loan borrowing, while also giving borrowers fewer options for income-driven repayment plans.

Rep. Tim Walberg, the Michigan Republican who serves as the committee’s chair, said the proposal was in response to “decades” of what he characterized as ineffective government spending on student loans.

“Colleges have ridden this gravy train of taxpayer dollars without any accountability for the quality of the education they provide or whether students can find jobs when they graduate,” he said in a statement. “This plan brings accountability and holds schools financially responsible for loading students up with debt.”

According to a Tuesday (April 29) report by CNBC, the proposal has prompted criticism from consumer advocates.

“The committee’s current proposal would severely restrict college access by slashing financial aid programs, eliminating basic consumer protections and making it harder to repay student loan debt,” said Sameer Gadkaree, CEO of The Institute for College Access & Success.

The proposal would limit undergrads to a $50,000 borrowing cap on federal student loans — $100,000 for grad students — beginning July 1 of next year.

These caps “will shift some borrowing to private student loans,” higher education expert Mark Kantrowitz told CNBC, noting that private student loans offer far fewer borrower protections than federal student loans.

The Republican proposal would also offer just one income-driven repayment plan for new borrowers, while also doing away with the unemployment deferment and economic hardship deferment on debt taken out during or after July of this year.

Student loan borrowers were already facing pressure before this proposal, according to findings from the Consumer Financial Protection Bureau (CFPB) published late last year.

That regular said that 42% of those borrowers had only ever been on the standard repayment plan for their federal student loans, and were unaware of other options.

“Our survey reveals that student loan debt relief has been a lifeline for many borrowers, allowing them to make positive changes in their lives,” then-CFPB Director Rohit Chopra said at the time. “However, it’s clear that many borrowers are struggling with repayment, and there is more work to be done to ensure repayment options are accessible and effective.”

More recently, a report by VantageScore found that more than 9 million borrowers were behind on their student loan payments. The credit-scoring firm said in February that borrowers who slip behind on their payments could see their credit scores drop by up to 129 points.