“The scope of the proposal to give the federal government authority to siphon money from some institutions in order to redistribute it to other institutions who are determined ‘winners’ under a convoluted formula is staggering in its scope,” American Council on Education president Ted Mitchell recently wrote to Congress. This phrase conjures the broad and contentious scope of the education overhaul bill that the House recently approved and President Trump led the charge on. Under the bill, if signed into law, student, family, and college interactions with the byzantine landscape of federal student loans and financial aid would be transformed at their very foundations.
For students, parents, and prospective students and current students and policy watchers, the bill’s provisions represent a startling shift: colleges may soon be held responsible for student loan defaults, while students have more limited borrowing conditions and fewer repayment choices. As the Senate considers the fate of this legislation, the stakes for affordability and access to higher education have seldom been higher. Here’s a closer examination of the most far-reaching changes at stake.
1. Colleges Will Repay Defaults on Student Loans
The most news-perking provision of the bill is its “risk-sharing” requirement, which holds colleges financially accountable for part of their graduates’ delinquent federal loans. If too many of their past students default, the school must compensate the government a measure intended to motivate institutions to make their degrees worth it in the workforce. As stated by the House Education Committee, “institutions that continue to burden their students with debt ultimately incur mounting penalties and lose access to federal student aid.” Critics caution, though, that the formula is not transparent and may disproportionately punish colleges that serve low-income and minority students. As one study discovered, 96% of colleges that have high percentages of Pell Grant recipients would be penalized, and 91% would lose funds even after grants are factored in.
2. Aid Based on National Median Costs, Not Actual Tuition
There is a seismic shift in aid computation looming on the horizon. The bill suggests granting federal aid based upon the national median cost for a program, not actual tuition at a student’s selected institution. For instance, a history student at a highly selective private institution would qualify for assistance tied to the national average price of history programs, which could leave substantial room to make up at more expensive institutions. This system, experts say, might push families to lower-priced colleges and restrict access to highly selective colleges to those with limited means. The Department of Education’s capacity to gather and process the data required to implement this model is questionable.
3. New Borrowing Limits for Students and Parents
The reform imposes hard new lifetime loan limits: $50,000 for undergraduate students, $100,000 for graduate students, and $150,000 for professional school. Parents have a $50,000 limit for all children combined. The total federal loan limit is $200,000. These caps, which will apply to loans disbursed after July 2026, are a sharp tightening relative to existing regulations. Consequently, they could push students studying costly programs like medicine into private loans, which tend to have higher interest rates and fewer safeguards.
4. Most Repayment Plans Cut, Two Remain
The bill eliminates most current repayment plans, keeping only an overhauled standard plan and a new income-based option called the Repayment Assistance Plan (RAP). The standard plan extends payments to 10 to 25 years, based on the amount of debt. RAP, on the other hand, aligns payments with income 1% to 10% of gross income, with a floor of $10 per month. Unlike the SAVE plan during the Biden administration, RAP does away with $0 payments for the lowest income earners and stretches forgiveness up to 30 years. Under this, as estimated by the Urban Institute, many borrowers, particularly those holding graduate debt, might have higher yearly payments.
5. Pell Grant Eligibility Restrictive and Awards Cut
Pell Grants, a savior for millions of poor students, take a dual hit. First, the bill increases the full-time minimum enrollment from 24 to 30 credits annually and excludes part-time students from eligibility. Second, it excludes students with a Student Aid Index over twice the maximum grant award a shift that would deny aid to more than 60% of current recipients, as estimated by EdSource. The maximum Pell Grant itself would fall by almost $1,700, the greatest decrease in the program’s history.
6. Endowment Taxes and Financial Pressure on Elite Colleges
Elite private colleges are met with a new multi-bracket excise tax on endowments, from 1.4% to 21%, from the existing flat rate. Rep. Tim Walberg, the head of the House Education and Workforce Committee, contended, “It’s no secret that colleges have taken advantage of the availability of unlimited federal lending and forgiving forgiveness programs to increase prices instead of enhancing access and affordability.” The critics caution that these taxes will compromise institutions’ capacity to pay for scholarships and aid needy students, especially at institutions of higher learning with hefty endowments.
7. Graduate and Parent PLUS Loans Slashed
The bill eliminates Grad PLUS loans and limits Parent PLUS loans, such as a $50,000 lifetime limit on parents. Parents cannot borrow until students have used unsubsidized loans first. These reductions may reduce access to graduate and professional education by students who lack private financing, and may drive families towards more risky private borrowing, according to policy experts.
8. Deferment and Forbearance Options Curtailed
Borrowers will no longer be able to skip payments due to economic hardship or unemployment on new loans, and forbearance will be limited to nine months over any 24-month period. Although borrowers who default can currently rehabilitate their loans twice rather than once, the overall safety net for financially distressed consumers is contracting. This may put more borrowers at risk of default, especially those experiencing unexpected setbacks.
9. Administrative Turmoil and Doubtful Implementation
The Department of Education is broadly underpaid, and implementing such wide-ranging changes will present challenges. Recent layoffs and attempts to disband the department, including an executive order to do away with it altogether, have sparked questions about the ability of the federal government to oversee new repayment systems and aid formulas. As education authorities warn, administrative ambiguity can leave students and colleges stuck in limbo, with reduced oversight and fewer dollars to fund accountability.
Is broadly underpaid, and implementing such wide-ranging changes will present challenges. Recent layoffs and attempts to disband the department, including an executive order to do away with it altogether, have sparked questions about the ability of the federal government to oversee new repayment systems and aid formulas. As education authorities warn, administrative ambiguity can leave students and colleges stuck in limbo, with reduced oversight and fewer dollars to fund accountability.
The House-passed revamp represents the most wholesale rethinking of federal student aid in decades. While allies view it as a necessary adjustment for soaring college prices and runaway student debt, detractors contend it could make higher education more unaffordable to the very people who rely most heavily on it. As the Senate considers its own iteration and as implementation challenges approach students, families, and colleges confront an interval of deep uncertainty. The next few months will tell if these dramatic changes make it into law, and how they will redefine the face of American higher education for years to come.
