House Democrats Introduce College Affordability Bill
Credit: Stefani Reynolds / Bloomberg / Getty Images- The LOAN Act would double the maximum Pell Grant award.
- The proposal would also shorten the timeline to loan forgiveness for public servants.
- It also seeks to cap interest rates on federal student loans.
A bill backed by House Speaker Nancy Pelosi would significantly change the federal student loan system and make college more affordable for low-income students.
Democratic backers of the newly proposed Lowering Obstacles to Achievement Now (LOAN) Act hope to double the maximum Pell Grant award by the decade’s end and cut the time it takes for public servants to qualify for total loan forgiveness. The bill, sponsored by House Committee on Education and Labor Chairman Robert Scott, would also make federal loans easier to pay back by capping interest rates at 5%.
Scott called the bill the logical next step to President Joe Biden’s plan to cancel up to $20,000 in federal student loan debt for many borrowers.
“The LOAN Act is the next step we must take to confront the student debt crisis,” Scott said in a statement. “Simply put, by making loans cheaper to take out and easier to pay off, the LOAN Act will help improve the lives of student loan borrowers — both now and in the future.”
House Higher Education and Workforce Investment Subcommittee Chair Frederica Wilson co-sponsored the bill, and Pelosi voiced her support for the legislation.
Pell Grant Reform
Doubling the Pell Grant has long been a goal of student advocates, and Biden announced a plan in March to do so by 2029.
The LOAN Act would codify that promise into law. According to a breakdown of the bill from Scott, the maximum Pell Grant award would reach $9,000 for the 2024-25 academic school year. The maximum would steadily increase over the next five years until it reaches $13,000.
The Pell Grant is the most common federal grant for low- and middle-income college students.
Additionally, the LOAN Act would mirror the grant to increase alongside inflation to keep its purchasing power relevant.
Changes to PSLF
The Public Service Loan Forgiveness (PSLF) program promises total federal student debt relief for those in public service industries. This includes government workers, public school teachers, and nonprofit employees.
Currently, these borrowers qualify for debt cancellation after making 120 qualifying payments on their loans, which equals 10 years of repayment without any pauses.
The LOAN Act proposes shortening that timeline to 96 on-time payments, or eight years.
This proposal would also codify an ongoing temporary waiver program for those looking for PSLF debt relief. Currently, the Department of Education is allowing borrowers to consolidate loans into the Direct Loan program and have past payments count toward the PSLF forgiveness timeline. However, that waiver program will expire after Oct. 31.
The LOAN Act would essentially make this waiver permanent.
In the Interest of Interest
Interest rates for new federal student loans on or after July 1, 2023, would be tied to the 10-year Treasury note under the LOAN Act. Additionally, the proposal lowers the percentage points and caps in the formula for all loans to 5%, according to a breakdown of the bill.
This ensures that interest rates for future loans will never be more than 5%.
All borrowers would be able to take advantage of these lower rates, as the bill allows them to refinance old debt to match this new rate.
Additionally, the LOAN Act provides graduate and professional students attending public and nonprofit institutions with access to subsidized loans at the same interest rate available to these students for unsubsidized loans.