As the Biden Administration continues to look for ways to forgive or cancel student loan debt to fulfill one of the president’s key campaign promises, two developments have surfaced that will ensure debt-related issues remain on the front-burner of the policy debate.  

First, Republicans in Congress introduced a legislative alternative on how to expend student loan resources, and, second, the Government Accountability Office (GAO) released a new study reporting that the Direct Loan program is costing much more than anticipated when it was created 25 years ago. Together these latest developments indicate that the student loan debate is heating up beyond the simplistic “cancel student debt” promotional drumbeat and could have real implications for higher education policy in the coming years.

Republicans on the House Committee on Education and Labor introduced the Responsible Education Assistance through Loan Reforms Act (REAL Reforms Act) to counter the Administration’s proposals to forgive and/or cancel student debt. The bill has several important components, including:

• Ending the current repayment pause implemented during the pandemic;
• Capping the amount of interest that can accrue to what borrowers would have paid under a standard repayment plan; 
• Eliminating the Public Service Loan Forgiveness program;
• Streamlining the multiple income-driven repayment plans; 
• Limiting graduate education borrowing to $25,000 annually and no more than $100,000 in aggregate for each program; 
• Allowing institutions to limit undergraduate and graduate borrowing for certain categories of borrowers; and
• Expanding Pell Grants to be used for short-term workforce education. 

Many of the proposals in the REAL Reforms Act reflect past Republican proposals, particularly the PROSPER Act – a comprehensive HEA reauthorization bill introduced the last time Republicans controlled the House.  The PROSPER Act was approved by the Republican-led Committee on Education and the Workforce but was not considered by the full House.

According to the new GAO report, the Direct Loan program will result in costs to the government of $311 billion more than originally estimated. When the Direct Loan program was first created as part of a deficit reduction plan in the mid-1990s, it was estimated that it would generate billions of dollars in income to help bring the federal budget back into balance. The program was estimated to generate income of $114 billion, but since the first cohort of borrowers in 1997, programmatic changes from legislation or regulations and annual updates, or “re-estimates” to the cost of loans, and economic factors have resulted in a swing to a cost of $197 billion.  

A key piece of the increase in cost is the pause of repayments since the onset of the pandemic, but it is not the sole reason for the swing in costs over the 25-year period.  The debate on program costs has been ongoing since the Direct Loan program was created and also includes partisan debates about what economic assumptions should be made when estimating program costs.