Senate Republican education plan may trigger ‘avalanche of student loan defaults,’ expert says

Senate Republicans’ proposal to overhaul student loan repayment could trigger a surge in defaults, one expert said.

The Senate GOP reconciliation bill’s higher education provisions “would cause widespread harm to American families,” Sameer Gadkaree, the president of The Institute for College Access & Success, said in a statement. The proposals do so by “making student debt much harder to repay” and “unleashing an avalanche of student loan defaults,” he wrote.

The Senate Committee on Health, Education, Labor and Pensions introduced bill text on June 10 that would change how millions of new borrowers pay down their debt. The proposal made only minor tweaks to the repayment terms in the legislation House Republicans advanced in May.

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With control of Congress, Republicans can pass their legislation using “budget reconciliation,” which needs only a simple majority in the Senate.

Gadkaree and other consumer advocates have expressed concerns about how the new terms would imperil many borrowers’ ability to meet their monthly bills — and to ever get out of their debt.

More than 42 million Americans hold student loans, and collectively, outstanding federal education debt exceeds $1.6 trillion. More than 5 million borrowers were in default as of late April, and that total could swell to roughly 10 million borrowers within a few months, according to the Trump administration.

Currently, borrowers have about a dozen plan options to repay their student debt, according to higher education expert Mark Kantrowitz.

But under the Senate Republican proposal, there would be just two repayment plan choices for those who borrow federal student loans after July 1, 2026. (Current borrowers should maintain access to other existing repayment plans.)

As of now, borrowers who enroll in the standard repayment plan typically get their debt divided into 120 fixed payments, over 10 years. But the Republicans’ new standard plan would provide borrowers fixed payments over a period between 10 years and 25 years, depending on how much they owe.

For example, those with a balance exceeding $50,000 would be in repayment for 15 years; if you owe over $100,000, your fixed payments will last for 25 years.

Borrowers would also have an option of enrolling in an income-based repayment plan, known as the “Repayment Assistance Plan,” or RAP.

Monthly bills for borrowers on RAP would be set as a share of their income. Payments would typically range from 1% to 10% of a borrower’s income; the more they earn, the bigger their required payment. There would be a minimum payment of $10 a month for all borrowers.

While IDR plans now conclude in loan forgiveness after 20 years or 25 years, RAP wouldn’t lead to debt erasure until 30 years.

The plan would offer borrowers some new perks, including a $50 reduction in the required monthly payment per dependent.

Still, Kantrowitz said: “Many low-income borrowers will be in repayment under RAP for the full 30-year duration.”

A typical student loan borrower with a college degree could pay an extra $2,929 per year if the Senate GOP proposal of RAP is enacted, compared to the Biden administration’s now blocked SAVE plan, according to a recent analysis by the Student Borrower Protection Center.

The Center included the calculations in a June 11 letter to the Senate Committee on Health, Education, Labor and Pensions.

“As the Committee considers this legislation, it is clear that a vote for this bill is a vote to saddle millions of borrowers across the country with more student loan debt, at the same moment that a slowing economy, a reckless trade war, and spiraling costs of living squeeze working families from every direction,” Mike Pierce, the executive director of the Center, wrote in the letter.