House Education and Workforce Committee Proposes $349 Billion in Offsets

Yesterday the House Education and Workforce Committee released its part of the House reconciliation package, which would save an estimated $349 billion through 2034 – above the Committee’s $330 billion savings floor. The proposal would cap graduate student and parent borrowing while boosting undergraduate lending caps, repeal current income-driven repayment programs in favor of new simplified options, impose “risk sharing” on schools to increase their accountability for costs and outcomes, reduce the Pell Grant shortfall by targeting eligibility to lower-income and fuller-time students, and limit future administrations from attempting to unilaterally cancel federal student debt. 

House Education and Workforce Reconciliation Bill

Source: House Education and Workforce Committee, Congressional Budget Office  
*Would generate tens of billions in additional discretionary savings.

The bulk of the bill’s fiscal savings – $295 billion through 2034 – come from changes to repayment for existing and new borrowers. The bill eliminates President Biden’s SAVE Income-Driven Repayment (IDR) plan, which is currently on pause by the courts. Existing borrowers in the SAVE plan or another IDR plan would be moved into a single plan where borrowers pay 15 percent of discretionary income for 20 years for undergraduate borrowers and 25 years for graduate borrowers. For new loans, borrowers have a choice of enrolling in a fixed plan with the number of years based on the amount borrowed, or a new IDR plan that forgives unpaid accrued interest each month, offers a principal subsidy up to $50, and forgives loans after 30 years in repayment. Existing borrowers will also be able to opt in to this new IDR plan, which we expect many will choose to do. The plan also disallows medical or dental residency to count as a qualifying public services loan forgiveness (PSLF) payment. 

The legislation saves another $51 billion from imposing and reforming borrowing limits. Under current law, undergraduate borrowing is limited to between $5,500 and $12,500 per year while graduate and parent borrowing is effectively uncapped. The package increases undergraduate borrowing limits by tying them to the median cost of college for that program of study and capping total lending at $50,000 – allowing schools to impose further limits. The bill also allows parents to borrow an additional $50,000 above the undergraduate borrowing. The bill also caps total graduate school borrowing at $100,000 for most programs and $150,000 for professional degrees. And lastly, the bill eliminates Subsidized Stafford loans so that all undergraduate loans accrue interest while in school. 

The bill also significantly limits the executive branch’s ability to make changes to the loan program, including attempts to modify repayment plans and cancel debt. CBO estimates this would save $32 billion through 2034, though savings could be much higher if future Administrations attempt aggressive debt cancellation as the Biden Administration did.

The package saves an additional $15 billion from changes to accountability rules. Most significantly, it establishes “risk sharing,” where colleges with underperforming loan repayment cohorts must pay back a percentage that the students borrowed. This will help put downward pressure on tuitions and upward pressure on college performances. The funds paid by schools would be used for grants to schools that enroll higher-risk students who achieve positive labor market outcomes. The plan also repeals certain existing rules that limited eligibility for for-profit schools that were overly dependent on federal aid or had low-performing post-graduate outcomes, while removing debt cancellation for certain borrowers who attended for-profit schools.

Finally, the package would reform the Pell Grant program by reducing eligibility to those with high wealth or currently uncounted foreign income, changing the definition of full-time student from 12 course hours per semester to 30 course hours per academic year, and requiring students to be at least half-time. These changes would close the majority of the Pell program’s $100 billion discretionary shortfall (the difference between expected costs and funding), while producing around $8 billion of mandatory savings that would be spent to further shore up Pell’s discretionary financing. The plan also expands Pell eligibility to “workforce” programs; though that policy has additional safeguards, it still could lead to higher-than-expected costs in the future. 

Inclusive of $41 billion of estimated interactions, the package as a whole would reduce deficits by $349 billion through 2034 and would also likely put downward pressure on tuition and improve college quality and accountability. Unfortunately, the $349 billion of savings generated from these provisions will not go toward deficit reduction, but will instead be part of a tax cut and spending package that is slated to borrow $2.8 to $5.8 trillion over the next decade. While the House’s $2.8 trillion of proposed borrowing would be less damaging than the Senate’s $5.8 trillion, either would be hugely problematic.