The U.S. House of Representatives passed the annual budget reconciliation bill, designated as H.R. 1, on May 22. Title III of the legislation contains the Committee on Education and Workforce’s proposed changes to the Department of Education’s (ED) student aid programs, including Pell Grants, student loans, and the aid eligibility formula. H.R. 1 was designed to rectify the government’s convoluted student loan system and save $351 billion.
The bill, if enacted into law, will eliminate all Federally-subsidized loans, which begin charging interest only after the repayment period has begun. The bill also eliminates economic hardship and unemployment deferments beginning on July 1, 2025, and reduces the total period in which a borrower’s loan may be in loan forbearance. The new system will require that all borrowers make small repayments of at least $10 per month against their loans. It will also make colleges share in the risk of default by borrowers.
The bill has been assigned to a Senate committee for review.
The most important changes included in H.R. 1 are described below.
Subtitle A – Student Eligibility
Under the proposed law, there will be major changes in how financial aid eligibility is calculated. Today, the calculation is based on the Cost of Attendance (COA) of the college that a student plans to attend. Under the proposed rule, each student’s aid would be based on the median cost of attending a similar academic program nationally. So, for example, the available aid for an engineering major at MIT would be based on the average cost of similar engineering programs across the country instead of just the COA at MIT. This measure is being presented as a way to help students pick lower-cost programs.
Subtitle B – Loan Limits
Many students and families will have their borrowing potential reduced by the proposed changes. The bill terminates the ability of undergraduate students to receive subsidized loans and terminates the ability of graduate or professional students to receive PLUS Loans as of July 1, 2026. It provides an exception of up to three academic years for students who are already enrolled in a program of study and have received a PLUS loan for it.
The bill also places certain restrictions on Parent PLUS Loans. Parents may only take out a Parent Plus Loan if the dependent student has already borrowed their maximum annual unsubsidized loan amount. Parent PLUS Loans, which today are uncapped, will max out at $50,000 per parent across all of their children.
The bill establishes new annual and aggregate loan limits for borrowers. There will be an overall aggregate lifetime borrowing limit of $200,000 for any single borrower across all Federal loan types. For undergraduates, the lifetime student loan limit will be $50,000. Graduate PLUS Loans, which now have no borrowing cap, will be terminated. Borrowers will be limited to $100,000 in loans for graduate programs and $150,000 for professional programs (law and medicine). The caps are meant to discourage excessive tuition inflation and prevent overborrowing.
Subtitle C – Repayment Plans
The current Federal student loan program offers a complex array of repayment plans. The choice among them is made even more confusing due to Federal court rulings that have blocked all or parts of some repayment plans. President Biden’s SAVE plan, for example, is on hold, as are the loan forgiveness features of Pay As You Earn and its successor, REPAYE.
The bill terminates all current student loan repayment plans for loans disbursed on or after July 1, 2026. It also eliminates economic hardship and unemployment deferments and reduces the total period a borrower may be in forbearance as of July 1, 2025.
The new bill will reduce repayment choices to just two options; a standard plan and a plan linked to income. Both are designed to make payments more manageable for borrowers.
The new standard plan will entail fixed monthly payments. Students will have between 10 and 25 years to pay down their debt, as noted in Table A, below.
Table A
New Standard Repayment Plan
| Student Who Borrowed: | Will Have: |
| Up to $25,000 | 10 years to repay |
| $25,000 to $50,000 | 15 years to repay |
| $50,000 to $100,000 | 20 years to repay |
| $100,000 and up | 25 years to repay |
Source: U.S. House Education and Workforce Committee
The ED’s repayment plans that currently base payments on a borrower’s income will be converted to a single new plan — the Repayment Assistance Plan (RAP). RAP will require participants to pay between 1% and 10% of their earnings against their loan balances based on their level of income. The bill allows payments under RAP to count as qualifying payments for purposes of the Public Service Loan Forgiveness (PSLF) program.
Table B shows required RAP payments in a range of borrower income levels.
Table B
Repayment Assistance Plan
| Annual Earnings: | Will Owe: |
| Up to $10,000 | $120 per year maximum |
| $10,001 to $20,000 | 1% of their income per year |
| $20,001 to $30,000 | 2% of their income per year |
| $30,001 to $40,000 | 3% of their income per year |
| $40,001 to $50,000 | 4% of their income per year |
| $50,001 to $60,000 | 5% of their income per year |
| $60,001 to $70,000 | 6% of their income per year |
| $70,001 to $80,000 | 7% of their income per year |
| $80,001 to $90,000 | 8% of their income per year |
| $90,001 to $100,000 | 9% of their income per year |
| $100,001 and up | 10% of their income per year |
Source: U.S. House Education and Workforce Committee
RAP is less generous than the ED’s current income-dependent plans. For instance, current plans lower monthly payments to $0 per month for the lowest earners, but RAP will require a minimum $10 monthly payment from all borrowers. Instead of forgiveness after 20 or 25 years, RAP will require 360 on-time payments, or 30 years.
There’s one idiosyncrasy of RAP that is likely to frustrate borrowers. Repayments increase with income, so there’s a chance that some borrowers may lose money when they get a raise in pay because their RAP payment might go up more than their pay did.
The bill will terminate the existing SAVE, PAYE, and REPAYE programs and convert them all to RAP. Monthly payments will be set at 15% of income in contrast to the current rate of 10%. Some current borrowers would end up with higher monthly payments.
RAP will also have some borrower-friendly features. For instance, as long as borrowers make minimum payments, the government will waive the unpaid interest for each month instead of adding it to a borrower’s outstanding balance.
Subtitle D – Pell Grants
The Pell Grant program, which provides aid to low- and moderate-income households, will see changes limiting access for part-time students. For instance, undergrads will need to be enrolled at least half-time to qualify for a Pell Grant. They will need to take a full course load of 15 credits per semester to get the maximum grant, up from the current 12 credits.
The proposed bill will also raise Pell-eligibility for short-term certificate courses. This provision will be especially helpful for students at postsecondary schools that provide vocational training. It will be accomplished by lowering the minimum length of an eligible certificate program to 8 weeks from the current 15.
Due to the hurdle of Senate passage, the proposed effective date of July 1, 2025, for the changes to Pell is problematic. College financial aid offices sent their offer letters showing Pell awards to 2025-26 admittees several months ago. Members of the Class of 2029 have, by now, chosen a college from among those that admitted them and have committed to enroll in that school in the fall. They will be unable to adapt to changes to the Pell program scheduled to become effective on July 1, 2025.
Subtitle E – Accountability
A significant change in the bill is a method of making the colleges who receive the proceeds of loans to be partially accountable for them. Beginning in 2028-29, the bill will require schools to repay a portion of a loan if the student defaults. If a college is a frequent repayor, it may become ineligible to participate in any Federal financial aid program.
It’s possible that this “skin-in-the-game” provision could disincentivize colleges from enrolling lower-income students, who are at higher risk of default. To prevent that, the bill includes a new grant program for colleges that gives them more funding based on a formula that rewards enrolling and graduating lower-income students. To qualify, a college would have to provide freshmen with a guaranteed maximum tuition for their degree.
Subtitle F – Regulatory Relief and Subtitle G – Limitation on Authority
Subtitles F prohibits ED from implementing any rule, regulation, policy, or executive action regarding regulations unless explicitly authorized by an act of Congress. Subtitle G limits the authority of ED to propose or issue regulations and executive actions related to Federal student aid programs. These changes mean that future administrations will not be able to make significant changes to student aid programs without the approval of Congress.
Borrower Advocate Objections
As expected with a bill that affects the student aid status quo, organizations such as the National Association of Student Financial Aid Advisors (NASFAA) and the Institute for College Access & Success have raised objections to several provisions. They are most outspoken in opposing parts of Subtitles F and G, as noted below.
- Repealing the 90/10 Rule
The bill repeals the ED’s “90/10 rule,” which requires that at least 10% of the money that for-profit institutions receive be derived from non-Federal sources. Years ago, this rule did not apply to student veteran benefits, creating a loophole that pushed for-profit colleges to focus their recruiting efforts on veterans, often with poor outcomes. Congress closed this loophole in a provision of the COVID-19 relief package that passed in 2021. However, H.R. 1 will end the “90/10” rule altogether, so that all of a for-profit college’s income could come from Federal sources.
- Gainful Employment
The bill would strike the phrase “Gainful Employment” from several definitions within the Higher Education Act, the law that provides for financial aid for students. The Gainful Employment rule helps ensure that career education programs receiving Federal aid prepare students for gainful employment in a recognized occupation. It’s intent is to protect students from low-value programs that may leave graduates with unaffordable debt and poor job prospects. Striking the term from definitions portends the revocation of the Gainful Employment rule.
- Borrower Protections
The bill repeals the 2022 version of the Closed School Discharge and Borrower Defense to Repayment rules, reverting to what they were prior to the Biden administration. The Closed School Discharge rule provides debt relief to a borrower whose school shuts down and the Borrower Defense to Repayment provision forgives debt for students whose college defrauded them. These two rules are instrumental in student’s obtaining the relief to which they are entitled. Without them, the process would be so onerous that qualified students may not even apply.
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