The Education and Workforce Committee in the U.S. House of Representatives advanced a piece of legislation known as the Student Success and Taxpayer Savings Plan on Wednesday, sending the bill to the Budget Committee before it can be considered on the House floor as part of President Donald Trump’s broader policy agenda.
The 103-page proposal has the potential to significantly alter clients’ calculus when planning for the high cost of a college education, warns Ross Riskin, a financial advisor and the founder of visiWealth, a firm that helps wealth managers use visuals to simplify complex planning topics for clients.
Riskin, who also sits on the advisory board for the American Institute of Certified College Financial Consultants, worked with the organization to publish new visual guides addressing two of the major changes in the proposal. One relates to federal student loan borrowing limits and the other to a brand new income-contingent repayment plan being referred to as the Repayment Assistance Plan (RAP).
Wealth management professionals should study up on the guides, Riskin says, both because education funding is an important part of holistic financial planning and because advisors with this expertise are highly prized by clients — including by the highly affluent.
As Riskin previously told ThinkAdvisor, it’s common for both wealth advisors and their wealthiest clients to think they earn too much to concern themselves with federal student loan applications. That’s often not true, however, especially as the price of an education has continued to escalate. A related issue is a lack of smart consumer behaviors in the realm of higher education.
“Paying for a college education is the one area in our lives where people tend to do their shopping first and set their budget second,” Riskin observed. “At the same time, we’re reaching a point where tuition and related costs at many schools can be as much as $100,000 per year.”
Riskin also highlighted the importance of families filling out the Free Application for Federal Student Aid to learn if they might be eligible for grants, scholarships, work-study programs and loans for college or career school.
“The truth is that, with college tuition costs climbing as high as they have, families a lot further up the income scale actually can qualify for aid,” Riskin said. “You don’t know what you might be eligible for until you apply, so it’s just an important thing for everyone to do, in my view.”
Student Loan Borrowing Limits
As the first guide makes clear, the legislation would establish specific aggregate lifetime federal student loan borrowing limits for students. For undergraduate degrees, the limit is set at $50,000, and it increases to $100,000 for graduate degrees and $150,000 for professional degrees. There are also aggregate limits set for parents ($50,000) and for student-parent pairs ($200,000).
Yearly limits would also be established by the legislation, which caps the total amount of federal student aid a student can receive annually at the “median cost of college,” defined as the median cost of attendance for students enrolled in the same program of study nationally as calculated by the Education Secretary using data from the previous award year.
The guide breaks down how these new limits could affect a given student who expects to pay a roughly average $40,000 per year (including $30,000 in tuition and $10,000 in living expenses) to obtain an undergraduate accounting degree, factoring in an anticipated Pell Grant award of $2,000.
Assuming the student can secure a $28,000 loan based on the cost of tuition minus the Pell Grant, the guide demonstrates, this would leave the student with a $10,000 funding shortfall in year one, while reducing their potential future borrowing to $22,000. As the guide shows, a parent could choose to fill that gap with a $10,000 loan, reducing their future borrowing capacity to $40,000.
Repayment Plan Details
The legislation would terminate all repayment plans authorized under previously established income-contingent repayment (ICR) programs and requires the education secretary to transfer borrowers enrolled in an ICR plan into the statutorily authorized income-based repayment (IBR) plan. The IBR plan would itself be significantly modified to implement a new “Repayment Assistance Plan” framework.
Generally, minimum payments under the Repayment Assistance Plan would be set based on a borrower's total adjusted gross income factored against a percentage ranging from 1% to 10% depending on the borrower’s income, with an automatic monthly minimum of $10. Other provisions establish links between larger household sizes (defined by number of dependents) and lower minimum payments per debt holder, and borrowers would be incentivized to make required on-time payments via the waiving of unpaid interest and through matching payment to principal of up to $50.
It’s a complex framework, and the guide shows how this new approach would look in practice across five income brackets and six household sizes. Depending on the scenario, minimum payments can range from more than $3,300 to just $10.
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