In January 2024, House Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) introduced the College Cost Reduction Act (H.R.6951). The bill proposes significant changes to how the federal government finances higher education. It also proposes to roll back regulations intended to hold institutions accountable for how well they serve students.
As part of the bill, Chairwoman Foxx proposed a new repayment system for federal student loans. Based on legislation previously introduced by Rep. Burgess Owens (R-UT), the proposal would replace existing income-driven repayment (IDR) plans with a single plan which would increase payments for most borrowers and remove existing safeguards that protect borrowers from carrying debt for more than 25 years. The bill would also make common-sense technical fixes to the loan system, including fully eliminating all remaining instances of interest capitalization and eliminating origination fees for new loans.
To better understand how the IDR plan proposed in H.R.6951 would affect borrowers, we conducted a preliminary analysis of how three example borrowers would fare compared to how they would fare under the SAVE Plan, the current most generous IDR plan.1
Our analysis shows that monthly payments for our example borrowers would be significantly higher under the Foxx plan. For some borrowers, that means that while they would be required to retire their debt more quickly, it would be at the cost of potentially unaffordable monthly payments.
Concerningly, the plan protects only income up to 150% of the federal poverty level. However, many individuals earning above that threshold—including 40% of adults earning between 200-300% of the federal poverty level—still report experiencing material hardships. This means that many such borrowers would likely need to choose between making student loan payments and covering basic needs such as housing, food, childcare, transportation, and medical care. Many such borrowers would be at high risk of delinquency and default.
Other borrowers, in addition to higher monthly payments, would also pay more in total than under SAVE, and would be in repayment for a longer period.
Our example borrowers:
- Borrower A has completed a generic Bachelor of Arts degree.
- Borrower B has pursued and borrowed for a generic Bachelor of Arts degree but has not completed it.
- Borrower C is representative of a Black borrower who has completed a generic Bachelor of Arts degree.
Borrower A: Borrower A has completed a generic Bachelor of Arts degree.
Median debt and earnings for Borrower A are based on numbers from the National Association of Colleges and Employers Class of 2021 Salary Survey and the College Board’s Trends in College Pricing and Student Aid 2022. Assumptions include an initial AGI of $55,911, a principal debt amount of $29,100, a 4.21% fixed interest rate, 4% annual income growth, and consistent, full-time employment.
Under the current SAVE program, Borrower A’s initial monthly payments are $96 and gradually increase to $277 by year 20. Borrower A repays a total of $41,900 and receives $6,546 in forgiveness after 20 years of repayment.
Under the Foxx proposal, Borrower A’s initial monthly payments would be $284—nearly triple the initial payment and higher than the maximum payment under SAVE. Borrower A’s monthly payment would reach $418 by year 9. Under this proposal, Borrower A repays a total of $35,230 over 8 years and 7 months.
Borrower B: Borrower B has pursued and borrowed for a generic Bachelor of Arts degree but has not completed it.
Debt and earnings are derived from College Scorecard data and reflect amounts for non-completers from private nonprofit colleges (Barshay, 2017). Assumptions for Borrower B include an initial AGI of $32,000, a principal debt amount of $8,000, a 4.21% fixed interest rate, 4% annual income growth, and consistent, full-time employment.
Under the current SAVE program, Borrower B’s initial AGI is below 225% of the federal poverty level, and no payment is required until AGI exceeds this minimum in year 3. Borrower B’s maximum monthly payment is $21. Because the total balance is less than $12,000, the repayment term is 10 years and because Borrower B’s monthly payments never exceed interest accrued, the entire balance is forgiven. Borrower B pays a total of $1,015 over 10 years.
Under the Foxx proposal, Borrower B’s initial monthly payment is $84 and increases to $136 by year 8. Borrower B repays a total of $9,544 over 7 years and 6 months.
Borrower C: Borrower C is representative of a Black borrower who has completed a Bachelor of Arts degree.
Borrower C is representative of a Black borrower, highlighting disparities in debt and earnings by race taken from Schak et al. (2020), which uses data reported by the National Center for Education Statistics (NCES). Borrower C has completed a Bachelor of Arts degree.
Assumptions include an initial AGI of $45,000, a principal debt amount of $34,000, a 4.21% fixed interest rate, 4% annual income growth, and consistent, full-time employment. Discrepancies in earnings by race for B.A. completers reflect both labor market discrimination and the higher likelihood of Black workers entering low-paying public service jobs (Mustaffa and Davis, 2021).
Under the current SAVE program, Borrower C’s initial monthly payments are $51 and gradually increase to $181 in year 20. Borrower C repays a total of $25,654 over 20 years. These payments are primarily applied to interest, and Borrower C receives $30,854 in principal balance forgiveness after 20 years of repayment. Under the Foxx proposal, Borrower C’s initial payments are $193—more than triple the amount under SAVE. Payments increase to $377 by year 14, and Borrower C repays a total of $46,220 over 14 years.
1The effects of IDR design changes are challenging to model. A borrower’s experience with repayment in an IDR plan—how much they pay per month, whether their balance is in negative amortization, and how long they remain in repayment—is determined by the intersection of a complex formula with a borrower’s personal (family size) and financial (income) trajectories over time.
To forecast total payments, total subsidies, monthly payment ranges, interest charged, and amount of debt forgiven across variations in IDR plan design, we crafted borrower examples based on assumptions about the following: amount of debt owed; interest rate; loan type (subsidized vs. unsubsidized, graduate vs. undergraduate); initial income when repayment begins; income growth over repayment period; employment status (e.g., years employed, part- vs. full-time); and family size over repayment period.
Other factors that we integrated (where external data allowed) include level of degree earned, degree completion status, occupation, and race/ethnicity.
We assume a 4.21% fixed interest rate for undergraduate borrowing and a 5.76% interest rate for graduate borrowing, based on the five-year average of these rates.
We assume 4% annual AGI increases (unless specific periods of unemployment are mentioned), as well as a 2.4% discount rate for Net Present Value (NPV) calculations based on CPI-U projections from the Bureau of Labor Statistics. Calculations that involve federal poverty levels are based on Department of Health and Human Services Poverty Guidelines for 2023. We assume a family size of one unless otherwise specified.
Borrower profiles are compiled using data from external sources as well as prior calculations from TICAS. Data sources may vary across borrower profiles; to remain consistent with our February 2023 analysis of the SAVE repayment plan, this analysis does not necessarily use the most recent of these data sources. Incomes included in borrower profile examples are AGIs reported in current U.S. dollars.
All loan repayment amounts are calculated by TICAS and are rounded to the nearest $1.
