Potential Effects of the PROSPER Act on Student Loans | Ranger student loan


The Higher Education Act of 1965 was first enacted to strengthen the resources of colleges and universities and provide financial support to students in higher education. Congress must re-authorize the law periodically, giving lawmakers a chance to review existing legislation, make improvements and create new initiatives.

Although reauthorization typically occurs every four to six years, over time the gaps between reauthorizations have widened. Since 1992, Congress has reauthorized the law only twice, in 1998 and again in 2008.

In recent years, Congress was poised to act, but failed to do so. However, earlier this month, Republicans on the House Education and Workforce Committee took one step closer to reauthorization and unveiled the over 500-page PROSPER Act, which stands for Promote To real opportunities, success and prosperity through education reform.

The committee’s goal with the new bill is to reform – rather than simply re-authorize – the higher education law. Here is an overview of aspects of the PROSPER Act – before any committee mark-up – that could affect student loan borrowers.

A loan, a grant: PROSPER understands the idea of ​​a loan, a grant to streamline federal student aid into one funding tool.

Policymakers and others have been circulating this idea for years as a way to simplify the lending process. The bill proposes to eliminate Stafford and PLUS loans for first-time borrowers effective July 1, 2019 and replace those options with a new federal ONE loan.

Borrowers who had borrowed direct loans before 2019 could still take them out until October 1, 2024, when direct loans would be completely phased out in favor of ONE loans.

On the subsidy side, the bill eliminates or phase out all federal subsidy programs except the Pell subsidy. In return, Bill provides an additional Pell Grant of $ 300 for those taking 15 or more credits per semester.

New borrowing limits: The ONE loan, despite its name, would have options for undergraduate and graduate students and parents, and would have different borrowing limits for each type of borrower. Dependent undergraduates could borrow up to $ 39,000 in federal student loans throughout their academic careers, while independent undergraduates could borrow up to $ 60,250 for life.

Graduate students would be limited to withdrawing $ 28,500 per year and $ 150,000 in total, and parents could only borrow $ 12,500 per year and a total of $ 56,250 per child.

No subsidized loans or origination costs but more disbursements: Currently, students who demonstrate financial need are eligible for subsidized Stafford loans, which means the loan does not accrue interest while the student is in school, within a grace period. or during authorized deferral periods. All students with or without financial need are eligible for unsubsidized Stafford loans, where interest begins to accrue from the time the loan is disbursed.

Under PROSPER, not all ONE program loans would be subsidized. In addition, all loan assistance would be paid weekly or monthly, like a paycheck, rather than the current practice of one payment per semester. And all loan origination fees would be eliminated.

Only two reimbursement options: ONE loan would come with only two repayment plans, compared to nine that exist today. The new plans would be a standard 10-year 120 equal payment loan repayment plan and a single income-based repayment program.

Under the new income-based repayment plan, borrowers would pay 15% of their discretionary income and the minimum payment allowed would be $ 25 per month. These borrowers would be required to repay the same amount of principal and interest that they would have repaid under the standard 10-year plan, so that there would be no return of principal.

However, interest on ONE loans in income-based repayment plans would be capped at whatever the borrower would have repaid under the standard 10-year plan, and any interest accrued beyond that amount would be forfeited. .

Direct loan borrowers would continue to be eligible for all income-tested repayment options that exist today, presumably throughout the life of their loans. As mentioned above, direct loans will still be available until 2024 for students who borrowed before 2019.

No PSLF for new borrowers: We’ve spent a lot of time recently discussing the civil service loan forgiveness, so we’re not going to talk too much about it here. But since this aspect of the bill has generated the most headlines in recent days and the PSLF remains one of the topics most frequently asked by readers, we wanted to clarify what the PROSPER Act has in store for federal borrowers. student loans working in the public service.

The bill does not deal directly with the PSLF, but since it eliminates all repayment terms except the two previously mentioned, the PSLF presumably disappears. However, under the bill, ONE loans would not be eligible for PSLF, but direct loans would be eligible throughout the life of the loans. As mentioned above, only borrowers with existing loans before June 30, 2019 would be allowed to take direct loans until October 1, 2024.

Suppose you started borrowing for college before 2019. You could still receive a direct loan until 2024, then enter the civil service, pay off your loan for 10 years, and still be eligible for a discount for the balance in 2034. If, however, you start borrowing for college in 2019 or later, you would only be eligible for ONE loan and ineligible for PSLF.

While some of the above changes may be alarming, it’s important to remember that this is only the beginning of Congress’s discussion of what should be included in the Reauthorization of the Higher Education Act. The Senate Committee on Health, Education, Work and Pensions has yet to intervene, probably in early 2018. PROSPER is far from being a done deal.

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