On Friday, House Republicans released a 542 page higher education bill that could reshape how Americans pay for college.
The PROSPER Act could impact many dimensions of higher education, but one of the most significant is its proposed overhaul of the $1.3 trillion federal student loan program. It changes how much parents and students are able to borrow, and would entirely eliminate certain loan-forgiveness programs.
The bill describes the "wind-down of Federal Perkins Loan Program." Perkins Loans are low-interest federal student loans for low-income undergraduate and graduate students. The interest rate for Perkins Loans is 5 percent, while the average fixed rate stands at 9.66 percent. By eliminating this program, the bill would raise interest rates on the student loans of financially needy students.
The bill would also end loan-forgiveness programs for public-service employees. Under the current Public Service Loan Forgiveness (PSLF) Program, public servants who make regular payments on certain federal student loans can have their remaining debt forgiven after 10 years.
In order to be eligible, borrowers must work for the government or an eligible nonprofit organization. This includes public school teachers, police officers and social workers, excluding those who work for labor unions, partisan political organizations or for-profit organizations.
According to U.S. News & World Report, over half a million borrowers have signed up for PSLF since 2007, making significant financial and career decisions based on its provisions.
The bill indicates that public servants repaying loans through the PSLF program will be grandfathered into an income-driven repayment plan. Usually, income-driven repayment plans are a smart choice for students. Currently, student loan payments can be set to as little as 10 percent of a borrower's discretionary income, so they only have to pay as much as they can afford. The PROSPER Act would also increase the minimum percentage to 15 percent of their income.
The proposed tax bills from Republicans in the House and Senate would also have dramatic consequences for those with student loans. The House tax plan would increase taxes for graduate students by roughly 400 percent and repeal the student loan interest deduction, which allows people with student debt to save up to $625 a year.
The Senate tax bill would also cause a significant loss for recent college graduates. The average recent college graduate makes $39,000 a year. According to the CBO's analysis of the Senate tax plan, individuals in every tax bracket below $75,000 will experience a year in which they record a net loss — meaning they'll pay more in taxes, experience diminished services, or both — by 2027.
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