New IBR and PAYE Under Threat in New GOP Bill

Hey, y'all. I want to do a quick emergency episode of the Student Loan Planner podcast to talk about something that is very concerning, which is the potential overhaul of the student loan system that the House GOP is proposing. Now, this is a really big deal. This is the biggest higher education bill that has been proposed in several years, at least. Really, since the PROSPER Act in 2017, at least. And so let me explain a little bit about why that's the case. So this is not just any bill. This is not some random, errant proposal from, like, one representative. A lot of times I get emails from readers that are like, Oh my gosh, did you see this bill that would change this about student loans? And it's, like, sponsored by, like, one or two members of the House, and I know it's just a nothing burger. But this is a big burger. This is a shocking burger. And let me explain why. So this is the budget reconciliation bill that the House has to kick off. There must be a budget reconciliation bill that comes out of Congress this year. The reason is the Trump tax cuts expire at the end of 2025. So unless you believe that the GOP, with unified control of the White House and Congress, would allow trillions of dollars of tax increases or tax cuts to expire, depending on how you want to frame it, right? If unless you believe that they would allow that to happen, which I absolutely believe they would not allow that to happen, I know that they will do something to keep taxes, at least not from jumping back to where they were before the Trump tax cuts, right? So that means there will be a budget reconciliation bill. The question is what will be in it. And so they have released their first draft for this bill, and the draft for the student loan provisions is not, is not, like, apocalyptic for borrowers, but it's not great either. And so let me explain what I mean by that. So there is some grandfathering, but not really. And let me explain what I mean. So if you are enrolled already in school, you get up to three academic years to finish a degree program with the existing loan limits. So, for example, if you're a, you know, first year dental student, you get to borrow for D2, D3, D4 years, and then you can borrow as much as you need to under the plus loans, and then you're cut off after that, right? So at least people don't have to mass quit their programs. But that's pretty much where the good news ends. Because there's a new IDR plan called the Repayment Assistance Plan that the GOP is putting forward. It would basically be a 30-year IDR plan. It's a stepwise function of 1% to 10% of your income. As your income goes up, the percentage goes up. So it caps out at 10% of income at $100K and up in income. And it does allow married filing separate, so I guess that is some good positive news. But the problem is what it does for current borrowers. So if this bill were to pass, it would end all ICR-derived plans. So no more save, which we knew that was coming, but it also ends the Pay As You Earn plan. And it also ends new IBR. So what they're doing to try to get around the statutory nature of IBR is they're trying to say, well, we're going to keep old IBR, which is 15% of income for 25 years until forgiveness. And you have to have a partial financial hardship to qualify, right? And what they're saying is we're going to consolidate everything from the past into this old IBR plan, which means that people will go from paying 10% of income for 20 years on pay and new IBR to paying 15% for 25 years if this were to pass. Now, this is a really major deal. This is the first time a GOP proposal has ever tried to not grandfather in borrowers that already have loans and terms they borrowed under. And if you think about it, this is pretty unfair. It'd be like if I went and bought a house with a mortgage, and then the bank said, oops, I really don't like that we gave you 3%. We really never should have given you 3%. We should have made it like 6% or 7%. And so we're just going to go and change the interest rate because we don't like that we locked ourselves in to 3%. Well, you know, you already borrowed. You can't unborrow because you signed up for terms that you signed on the promissory note, right? Now, I do think that if this were to pass, there would absolutely be lawsuits. I don't know what those lawsuits would result in in a 6-3 conservative majority Supreme Court, but I know that there would be lawsuits filed, probably in some more friendlier jurisdictions instead of the more conservative jurisdictions, right? And there might be some, you know, injunctions or some, you know, constitutionality questions that are raised, and there might be something that tries to put this law on hold for the rest of the presidency, and then maybe you see what happens in 2028. Now, you know, the crazy news doesn't stop there, though. Professional school students would have loans capped starting once everybody that's already enrolled graduates at just $150K. That's it. $150K. The cheapest dental school in the country, off the top of my head, or at least one of the cheapest, I think is East Carolina. I'm going to, like, literally live type it in here just to see what the total cost is, because I think off the top of my head it's something like $250K total or something along those lines. I mean, it's definitely not insignificant. Like, the cost is quite large, right? So, I mean, if I think about the cost of, like, the cheapest med school in the country, like, you would need to borrow more than that. So basically, like, think about other schools, too. Think about what would happen to the huge number of programs that opened up since Grad Plus came out. Like, probably at least half of them would close. So, I mean, this actually, if you already have loans and you've already gotten forgiveness or you paid off your loans or you're already refinanced or something, this bill is probably actually a good thing for you because the supply of new professionals to the fields that you're in is just going to dry up like crazy because people that need to borrow more than $150K are going to have to turn to the private market and you have to have a cosigner with the current structure of the private market in most cases, which means that you're not going to get approved for very much additional financing, right? People say, well, what about private MBA programs that people borrowed through the private market for? Well, that's a very edge case. You're talking about the top, you know, 20 business schools in the country that are a two-year program instead of a four-year program, so it's real easy to get people out of there quickly and those people make money in the summer in between their first and second years, right? So that's a completely different animal than, hey, we're going to borrow, you know, an extra $150K of private student loans for four years of school and defer them. I mean, a lender has to get paid a really high interest rate to be able to do that. So, you know, I think that the one thing I can say is that we shouldn't necessarily panic over this because the Senate is going to chew this bill up and spit it out with its own views and the Senate is more likely than not going to come up with a more conservative, or sorry, a more moderate version of what this House GOP proposal has been. But the thing that bothers me the most is the lack of grandfathering on the new IBR plan and the PAY plan because people borrowed based off of these promissory note terms, right? This is something, you know, you might be able to logically make the argument that the PAY plan was, you know, an executive action and therefore, you know, it's something that Congress could say, hey, just kidding, that's not allowed because it's an executive action that shouldn't be considered a promise from Congress. But the new IBR plan was. The new IBR plan is in statute. It's literally promising it. It's not an executive action. It's not a regulation. It was passed with 60 votes in the Senate over a filibuster. Now, part of me wonders, well, the House can propose whatever it wants. Will the Senate parliamentarian agree to everything that needs to happen for a bill to go through budget reconciliation? So you have to have very limited stuff that's affected for something to pass through budget reconciliation. So the House can propose whatever it wants. It has to pass the Senate. It has to pass the filibuster rules. And that's usually how stuff happens with the Senate is, you know, the House passes all kinds of stuff and the Senate is where the sausage really gets made because it's got to fit into whatever the parliamentarian's definition of something that can bypass those filibuster rules. And to me, wholesale changing an existing loan program for people who already took out the loans that also passed with 60 votes in the Senate back during the Affordable Care Act era, that is not at all something that should fit in a budget reconciliation. That's wholesale changing a program which you're supposed to have 60 votes in the Senate to do. Now, the other thing is this reform proposal is not really a reform proposal. They're saying they're simplifying things. All they're doing is kicking the can down the road until the Democrats have power. And the reason there is if you pass something as a purely party-line vote like this to limit loan limits down to what they were in like the 90s and, you know, dramatically make these loan programs less generous, then the next time the Democrats have the power, which at some point they will, and you've already set this precedent that you can go back and change promissory notes to make them different than what people signed, then Democrats could just come in and just say, hey, let's just have all the loans be gone, poof, right? We're just gonna make a loan that's, you know, 2% of income for five years, and then it's gone, right? Now, they might have to do pay-fors. They might have to pass CBO scoring. There might be some obstacles to that, but they could because if Republicans are doing this, then Democrats could do whatever they want to do next time they have power. So I think that the overall math still would check out that I've told people on the podcast, which is if your debt-to-income ratio is over 2 to 1, you'd still go for forgiveness. If your debt-to-income ratio is below 1 to 1, then you'd still probably go for full loan payoff unless you're doing like some edge case PSLF stuff. And if you're in between, you'd have a decision to make. If you're in between, you could say, well, I want to go ahead and pay back my loans now and refinance and get rid of them. That would potentially be a reasonable response if this were to pass. But at the same time, if it was me, if I had a really significant amount of debt, I think I'd probably want to see what I qualify for and probably maybe hedge my bets a little bit and try to hold off on making any decisions until we see, you know, who wins the 2028 election, to be frank. You know, that sounds kind of crazy, but it's like, what, three and a half years away, give or take? It's not forever. It might be good to know what happened because this bill is not going to go into law until, you know, end of the year. And so it's not going to really have a full effective date until like mid-2026. And then you have to see what happens in the midterm elections, and then you have to see what happens in the 2028 elections. I'll say that the Democrats, if they do take the House, would have a ton of negotiating leverage to change some of this stuff if they wanted to. So, I mean, this is really pretty intense, pretty crazy. I will say that I do think in the end, the grandfathering in of people on the new IVR plan will survive. I do think the loan limits that they're proposing are going to get raised a lot because professional schools are absolutely going to howl about this and lobby with every power that they have. And, you know, this is going to be contingent upon what goes through the Senate, right? This is the first draft of the actual text we've seen, so this is the first time we've ever actually had the opportunity to see what are they actually thinking about doing. But my prediction is they're going to face a huge response from borrowers, from schools. It's going to be overwhelmingly negative, and you might say, well, why would they care? The tariff stuff, that got rolled back because people were really pissed off, you know, full stop, right? They got a bunch of emails from wealthy constituents. You know, a lot of people did from swing districts, a lot of senators did, and they were furious responses, and they backed off because, at the end of the day, they do know that President Trump will not be running for a third term even though, you know, headlines notwithstanding. They all know that. The people in swing districts all know that. And they are politicians and want to keep their seats, by and large, right? So I think that they understand that something, you know, like putting loan limits in place might make a lot of sense. It might be very reasonable. But what they're doing, in this case, is to say, if you do 150K loan limits for professional school, only upper-income and upper-middle-income families will be able to afford to send kids to be dentists and physicians and veterinarians. Like, literally, first-generation kids would not be able to get access to private loans in most cases, so they would just be out of luck. And that's a very high cost to implement on society in terms of, like, economic mobility. So do I think they're going to follow through with that? That's why I think that they'll probably bump up the professional loan limits in the Senate. So I would be even more shocked if they don't do that. But now is the time, if you're on the pay or the new IBR plan, to let your congressperson or your senator know that this feels like a rug pull. You borrowed a significant amount of student loans, and you borrowed with the contractual terms, and the contractual terms were that you would get access to the new IBR plan or the pay-as-you-earn plan, and that they're trying to change this midstream, which is no different than if a bank tried to change their interest rate mid-mortgage. And if you have a variable-rate mortgage, then that's what you signed up for. But if you borrowed, especially based off of the IBR statute, those are the people with the strongest case, definitely it's time to let your elected officials know how you feel about this, if you do want to let them know. And so the way to do that, you literally just Google, like I would Google, U.S. Senators, North Carolina. That's where I'm at. And then you have people pop up, Ted Budd and Tom Tillis, right? And so of the two, Ted Budd is a lot more conservative, Tom Tillis is a lot more kind of moderate, is up for reelection in 2026. So if I cared about this issue, if I was a borrower, I would then aggressively message Senator Tillis, right? I'm just giving you an example so you can kind of think through this with your own strategy. Because my congressperson, I believe, I think she's a congressperson in like a Democrat plus 40 district. So that means that, of course, she's going to agree that this is not something that she wants to see pass. And so that's not going to really move the dial or make a big difference, right? But you better believe that anybody that's a senator in a swing state or a purple state, or even like a light red state or light blue state, is going to care a whole lot about constituent feedback on bills like this, right? They're going to be really noticing what feedback people give. And to be honest, grandfathering in people on the new IBR plan is really a pretty minor change. If they want this bill to pass and survive legal challenges, they shouldn't make that change. Because, again, it's a basic simple premise of like contract law, I would think, that if you borrow it based off of certain loan terms, you should get to keep them. Particularly when those terms are written out in law. You know, it would be kind of like Congress saying, well, we sold a bunch of treasury notes at 6% interest or something, and we can just go back and say, well, that's too much, we want to issue a bunch, or reissue them at 4%. Well, you can't do that, right? But I guess what they're saying is, is with student loans, they feel like they can. And so the thing that stops them from doing that one's going to be the Senate. We have to wait, like if the Senate comes out with a bill that's similar, then I would be really concerned. Right now, I'm like moderately concerned, and I felt like it was worth an emergency pod to share what's going on with you. But the Senate is where the rubber meets the road. When we see what they come out with, that's when we'll really have an idea of how serious this really is. So, real positive, right? I'm trying to be positive. I think, again, some positives are marriage filing separately was kept in there, so there's not a marriage penalty, which is positive. PSLF would exist. I will say one big thing I didn't mention is that residency and fellowship would no longer count for PSLF going forward if this bill were to pass. In the past, it would. So it's kind of weird, right? There's a lot of stuff that is grandfathered, like loan limits and borrowing, PSLF, but then there's stuff that's not grandfathered, like access to the new IVR plan in this bill. So it's just really confusing. So, let your elected officials know how you feel about it, if you want to. And I'll take your questions if you have them, studentloanplanner.com slash voicemail. And if you need a consult about all this mess to adapt your personal plan for the chaos, studentloanplanner.com slash book. And if you are a wealth client, then I would just say, I would probably recommend to let the dust settle on this a little bit. I think it's worth talking about over the next few months. I don't think it's an urgent thing you need to talk about with your planner, because everybody's wealth client already pretty much has a student loan plan pretty dialed in, right? But if you feel like, gosh, I'm so confused right now, I don't blame you, we can still cut through a lot of the chaos and the confusion with a loan plan. So, just something to think about. And again, we'll look forward to answering some listener questions in an upcoming pod. So, just wanted to get this out there, get some people thinking about this and contacting their representatives and elected officials to let you know, let them know how you feel about this. If you feel really upset about them potentially taking away terms that you borrowed under, let them know that. So, thank you for listening to the Student Loan Planner Podcast. Hope you have a great rest of your week. Are you on the free student loan planner email list? If yes, you could upgrade your experience and discover student loan loopholes so good, they might get repealed if I talk about them publicly. Find out my very best thought leadership that I really just can't be super open about anymore, unfortunately. If you wanna get our very best tips, not just the ones that I can share for free, then go to studentloanplanner.com slash insider to get a special discount for your year membership. That's studentloanplanner.com slash insider and get our very best dozens of bonus content and tips that's gonna save you money and get you out of student debt faster. And if you're already an SLP insider, please reply back to those emails and let me know how I can make it even more valuable.