The biggest potential change to federal student loan policy in years, — The Prosper Act — is out of committee and could go up for a vote before the full House in the coming months.  This is Part 1 in a series of deep dives on the effect of the Prosper Act.  Today we will start with a summary of the new student loan program.

If you’re a devoted reader of this blog, or just a student loan wonk, you’ll know that there have been two major federal student loan programs: The Federal Family Education Loan (FFEL) Program and the Direct Loan Program.

Until the FFEL Program was sunsetted on July 1, 2010, the program provided for private lenders to issue federally-backed student loans.  Millions of dollars worth of FFEL loans are still on the books of borrowers all over the country.

Since 2010, most borrowers get their loans under the Direct Loan program, where the Department of Education funds and issues the loans rather than private lenders.

The Prosper Act would sunset the Direct Loan Program and replace it with the Federal ONE Loan Program.   

Since the Perkins program already expired in September 2017, Federal ONE Loan would be the main lending program if the Prosper Act passed.  Any new borrowers after June 30, 2019 would be issued Federal ONE loans, not Direct Loans.  Certain borrowers, such as those already enrolled in a program, would be grandfathered into Direct Loans until September 30, 2024 at the latest.

So what will a Federal ONE loan look like? It will be issued by the Department of Education — much like the Direct Loan — and will have similar interest rate caps based on the 10-year Treasury plus a spread.

The Federal ONE loan will impose annual caps on borrowing for graduate students and parents based on hard limits rather than the cost of attendance, which is currently used to create a cap under the Direct Loan program.  For instance, Parent loans will be capped at $12,500 annually rather than whatever is needed to meet the cost of attendance.

The biggest change will be in the repayment plans available.  We’ll cover that in the next post.

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