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A Republican congressman has introduced a student loan reform bill that, if enacted, could benefit millions of borrowers through lower interest rates.

Rather than provide immediate relief via student loan forgiveness of a borrower’s principal balance, the Affordable Loans For Students Act would significantly reduce federal student loan interest rates going forward. The legislation would also give borrowers a pathway to refinancing their loans within the federal student loan system — an option that is not available to borrowers today.

“Nowhere have costs skyrocketed more than in higher education," said Rep. Mike Lawler (R-NY) in a statement last week. "And sadly, with high interest rates, making even a dent in the principal balance can be a challenge. The Affordable Loans for Students Act will make higher education easier to access and student loans easier to pay back, instilling confidence in the affordability of college for all borrowers."

Here’s that the bill does, and what it might mean for student loan forgiveness for borrowers.

Student Loan Forgiveness Remains Polarizing Issue As Biden Administration Winds Down

The Biden administration has had mixed success in following through on promises to enact widespread student loan forgiveness.

Through various executive actions, including regulatory updates and temporary waivers, the administration has managed to wipe out upwards of $175 billion in federal student loan debt for nearly five million borrowers, according to the latest data provided by the Education Department. This includes more than a million borrowers who benefited from recent changes to Public Service Loan Forgiveness, a bipartisan federal program that can eliminate federal student debt after 10 years in repayment while working in qualifying nonprofit or government employment.

But other Biden administration efforts have faced serious roadblocks. President Biden’s first attempt at mass student loan forgiveness was struck down by the Supreme Court last year following a legal challenge by Republican-led states. And several other initiatives including the new SAVE plan, a “Plan B” mass student debt cancellation initiative, and updated regulations for Borrower Defense to Repayment, are all stuck in legal battles brought many of those same GOP state leaders. The incoming Trump administration is unlikely to continue those programs, as the issue of loan forgiveness has gotten more polarized.

New Republican Bill Would Lower Student Loan Interest Rates And Permit Refinancing

The Affordable Loans For Students Act, sponsored by Rep. Lawler, would automatically reduce the interest rates for government-held federal student loans to just 1%.

Currently, interest rates on Direct federal student loans can be as high as 8.5%. And these interest rates are set at the time of the loan’s disbursement. Current law does not provide any pathway within the federal student loan system for borrowers to lower their interest rate. The only option would be to refinance the federal loan through a private lender, which would result in the loss of access to federal student loan forgiveness and repayment programs and associated protections.

Under the proposed legislation, the Education Department would “establish and implement, with respect to each borrower of an eligible Federal loans held by the Secretary, procedures to modify, without any action from the borrower, the terms of such loan so that beginning on the first July 1 after the date of enactment of the Affordable Loans for Students Act, the applicable rate of interest shall be 1.0 percent on the unpaid principal balance of the loan.”

The bill also provides a path to refinancing non-Direct federal student loans, such as FFEL-program loans, into a Direct loan via the Direct loan consolidation program so that these borrowers can also get the 1% interest rate. Interest rates for some FFEL loans can be as high as 9%.

Reducing Interest Is Distinct From Student Loan Forgiveness

Lowering interest rates is, of course, not the same thing as blanket student loan forgiveness, and Rep. Lawler has made it a point to affirm that.

“The objective here is to really make sure that we are providing low interest rate student loans, but ultimately making sure that people who take out these loans are responsible to pay them back and not the taxpayer," said Lawler in statement on Fox Business.

Notably, however, the bill would preserve borrowers’ access to existing student loan forgiveness programs, such as PSLF and income-driven repayment.

“The Secretary may adjust such terms and conditions as necessary to enable the borrower to access loan forgiveness or other benefits available to the borrower under the loan before refinancing under this subsection, in any case where such benefits are more generous than provided under a Federal Direct Consolidation Loan,” says the proposed legislative text.

And reducing interest rates can have tangible, meaningful impacts for borrowers that can effectively operate as a waiver — or even forgiveness — of future interest that would otherwise have to be repaid. For example, a borrower with $30,000 in federal student loan debt at a 6.5% interest rate would have a monthly payment of $345 per month to repay the loan over a 10-year term. That borrower would pay $41,400 in total over the 10-year period. But if their interest rate was only 1%, that same borrower’s monthly payment would be only $263 per month, and they would pay only $31,560 in total — a $10,000 difference.

While this is not $10,000 in student loan forgiveness, as President Biden had proposed four years ago, it is $10,000 in potentially very real savings for the borrower over time — which is not insignificant.

Student Loan Forgiveness And Other Reforms Uncertain

As Republicans prepare to have complete control of the federal government in 2025, the fate of several student loan forgiveness programs remain unclear. The SAVE plan is likely to get struck down by the courts, and several other Biden administration initiatives will probably get scuttled by the Trump administration. But other programs such as PSLF, Income-Based Repayment, and the Total and Permanent Disability Discharge program are all rooted in federal statute, and will be far more difficult for Republicans in Congress or the Trump administration eliminate. And any repeal effort could grandfather in current borrowers.

But reducing the impacts of student loan interest could be an area where there is bipartisan agreement. And Rep. Lawler’s bill is not the first Republican-sponsored legislation targeting student loan interest. Sen. Marco Rubio (R-FL), who has been tapped by Trump to be Secretary of State, previously supported replacing interest on federal student loans with a one-time origination fee. And the Republican-sponsored College Cost Reduction Act, while including many provisions borrower advocates strongly oppose (such as the elimination of time-based student loan forgiveness), would end interest capitalization and cap the amount that borrowers would pay in total over a loan’s repayment term.

https://www.forbes.com/sites/adamminsky/2024/11/25/republican-student-loan-forgiveness-new-gop-bill-would-reduce-interest/