MW The 5 huge changes coming for student-loan borrowers and colleges under GOP megabill

By Jillian Berman

From repayment plans to smaller loans: 'Some of the most significant change we've seen in higher education in a couple of decades'

Much of the hype and controversy surrounding the Republican megabill are focused on its provisions that cut taxes and slash the social safety net. But it is also quietly ushering in a new era in higher education and student lending.

The bill, which is heading to President Donald Trump's desk after the House of Representatives passed it on Friday, makes major changes to student-loan repayment and the way loans are disbursed. It also expands the Pell Grant program to new types of providers and raises taxes on universities, among other related provisions.

The shift comes amid a broader and higher-profile effort by the Trump administration to reshape U.S. higher education that's been largely marked by legal and funding fights with Ivy League schools. Some of the provisions in the bill could go a long way toward changing the higher education landscape. Significant savings - to the tune of more than $250 billion - might also be booked, which made higher-education-related portions of the bill attractive to a Republican caucus looking to appease deficit hawks as well as mounting concerns about the unpopularity of cuts to Medicaid and other safety-net programs.

See: Hoosier health insurance? Some Americans may be on Medicaid and not even know it.

"This is some of the most significant change we've seen in higher education in a couple of decades," said Clare McCann, managing director of policy and operations at the Postsecondary Education and Economics Research Center at American University. "The changes to student lending and the changes to student-loan repayment will very much change the way we think about financing higher education, and that will have real implications for students and for borrowers."

The bill comes at a time of major upheaval for student-loan borrowers. The Department of Education resumed collections on defaulted student debt earlier this year, putting millions at risk of facing the harshest consequences of the student-loan system. Millions of borrowers remain in limbo as courts determine the legality of their payment plans. Meanwhile, the Trump administration significantly reduced staffing at the Department of Education, straining the department's ability to deliver services to borrowers and schools.

"Many of these provisions are meant to take effect in a year, which is very soon given the scale of these changes," McCann said. The Department of Education's capacity to deliver services is severely diminished even as the mass-scale firings are being challenged in court, she added. "They are going to be asked to implement some of the most significant changes to the higher-education finance system that we've done in decades with half the staff they had six months ago."

Here are some of the biggest changes in the bill:

New student-loan repayment plans

New borrowers and some existing borrowers will face major shifts in how they repay their loans. The bill scraps many of the existing loan-repayment options and replaces them with just two.

The first is a mortgage-style, standard repayment plan under which borrowers' payments are determined by the size of their loan. Under this plan, borrowers spend between 10 and 25 years repaying the debt.

The second is an income-tied plan, known as the Repayment Assistance Plan or RAP. For decades, the government has offered some version of income-driven repayment, under which borrowers repay debt as a percentage of their income and then have the remainder canceled after a certain period. The latest iteration of the megabill makes a number of key changes to this structure, including:

No more protected income: Right now, borrowers using income-driven repayment have at least 100% of their income protected before payments kick in. Under RAP, payments are based on a borrower's adjusted gross income and the share of income borrowers devote to their payments goes up as their income rises.

Raises the minimum payment: Right now, borrowers with a low enough income can stay current on their loans without making any payments. RAP raises the minimum monthly payment to $10.

Lengthens forgiveness timeline: Under current plans, borrowers have their debt canceled after at least 20 or 25 years of payments. RAP extends that period to 30 years.

Waives unpaid interest and makes a matching principal payment: One of the chief complaints borrowers have had about versions of income-driven repayment is that, in many cases, borrowers' payments don't hit the principal, which means they can see their balances grow. RAP aims to deal with that by waiving unpaid interest and providing a matching principal payment of up to $50 for borrowers who make on-time monthly payments but don't hit the principal.

Overall, the new repayment regime is expected to increase payments for low-income and high-income borrowers.

Borrowers currently enrolled in other versions of income-driven repayment, including income-contingent repayment, pay as you earn, and saving on a valuable education will be moved to another income-driven plan, called income-based repayment, by 2028, which could mean some pay more each month.

In addition to the changes to repayment plans, the bill doesn't extend a COVID-era provision set to expire at the end of the year that makes cancellation under income-driven repayment plans nontaxable. That means borrowers who have loans discharged under these plans starting in 2026 will have to pay taxes on the forgiven debt.

"We're talking about a total overhaul of the student-loan system - that will be enormous," said Bryce McKibben, senior director of policy and advocacy at the Hope Center for Student Basic Needs at Temple University. "We're going to see huge growth of the private student-loan market as a result of this bill."

Tightening loan limits

The bill also tightens limits on the amount students and parents can borrow in a number of ways. Right now, graduate students and parents can borrow up to the cost of attendance of a given program.

The bill, formally known till Tuesday as the One Big Beautiful Bill Act, changes that. Starting in July of next year, graduate students will be able to borrow up to $100,000 total and professional students up to $200,000.

McCann said she expects that this provision "will seriously constrain graduate borrowing in a lot of programs in a lot of schools around the country." In addition, it's likely to push many graduate students toward the private market for their educational financing. That could mean that students coming from low-income families or those with less wealth may face more onerous terms.

The bill also limits borrowing by parents to up to $65,000 total. For years, policymakers and stakeholders have expressed concern about nonwealthy parents taking on unsustainable debt to pay for their children's schooling. Still, even with new limits, some worry parents will struggle. They'll still be able to borrow without a credit check, while the bill eliminates the only income-driven repayment option available to parents.

Accountability

Students, their families and policymakers on both sides of the aisle have said for years that schools should have more "skin in the game," or take more responsibility for poor student financial outcomes. Democrats have repeatedly tried to push forward regulations that require schools, particularly for-profit colleges, to prove they provide financial value.

With this bill, Republicans are taking their own stab at the issue. Starting next year, bachelor's-degree programs in which the majority of graduates don't earn more than the median high-school graduate in their state will be cut off from the federal student-loan program. Graduate programs where the majority of completers don't earn more than the median bachelor's-degree recipient in the same field in their state will also be excluded.

Programs would need to fail this test for two out of three years to lose their eligibility for student loans.

"My expectation is that this provides institutions with a lot more reason to care about what is happening to their graduates in the workforce," McCann said.

Research from her organization, the PEER Center, found that about 2% of students enrolled in associate's-degree programs and less than half a percent of bachelor's-degree recipients would be affected by these regulations.

"What's really clear when you look at the data is that these are outlier programs," McCann said of the programs that would lose access to student loans based on the provision.

Still, there could be unintended consequences. The earnings test only applies to students who graduate. "That does set up a system of perverse incentives for schools," in which they might only focus on getting students to graduation who have a good chance of succeeding in the workforce, said McKibben.

The accountability measures also don't go far enough, some experts say. For one, they don't apply to undergraduate certificate programs, which can have some of the shoddiest outcomes. In addition, the metric being used doesn't take the amount of debt a student takes on into account.

"It's possible that a program leads to a bump in earnings but still leaves people with a significant amount of debt," said Sarah Sattelmeyer, the project director for education, opportunity and mobility at the think tank New America.

Bringing Pell Grant eligibility to short-term programs

The bill makes a major change that lawmakers on both sides of the aisle have, at least philosophically, supported for years and which has been a priority of Secretary of Education Linda McMahon - extending Pell Grant eligibility to shorter-term programs.

MW The 5 huge changes coming for student-loan borrowers and colleges under GOP megabill

By Jillian Berman

From repayment plans to smaller loans: 'Some of the most significant change we've seen in higher education in a couple of decades'

Much of the hype and controversy surrounding the Republican megabill are focused on its provisions that cut taxes and slash the social safety net. But it is also quietly ushering in a new era in higher education and student lending.

The bill, which is heading to President Donald Trump's desk after the House of Representatives passed it on Friday, makes major changes to student-loan repayment and the way loans are disbursed. It also expands the Pell Grant program to new types of providers and raises taxes on universities, among other related provisions.

The shift comes amid a broader and higher-profile effort by the Trump administration to reshape U.S. higher education that's been largely marked by legal and funding fights with Ivy League schools. Some of the provisions in the bill could go a long way toward changing the higher education landscape. Significant savings - to the tune of more than $250 billion - might also be booked, which made higher-education-related portions of the bill attractive to a Republican caucus looking to appease deficit hawks as well as mounting concerns about the unpopularity of cuts to Medicaid and other safety-net programs.

See: Hoosier health insurance? Some Americans may be on Medicaid and not even know it.

"This is some of the most significant change we've seen in higher education in a couple of decades," said Clare McCann, managing director of policy and operations at the Postsecondary Education and Economics Research Center at American University. "The changes to student lending and the changes to student-loan repayment will very much change the way we think about financing higher education, and that will have real implications for students and for borrowers."

The bill comes at a time of major upheaval for student-loan borrowers. The Department of Education resumed collections on defaulted student debt earlier this year, putting millions at risk of facing the harshest consequences of the student-loan system. Millions of borrowers remain in limbo as courts determine the legality of their payment plans. Meanwhile, the Trump administration significantly reduced staffing at the Department of Education, straining the department's ability to deliver services to borrowers and schools.

"Many of these provisions are meant to take effect in a year, which is very soon given the scale of these changes," McCann said. The Department of Education's capacity to deliver services is severely diminished even as the mass-scale firings are being challenged in court, she added. "They are going to be asked to implement some of the most significant changes to the higher-education finance system that we've done in decades with half the staff they had six months ago."

Here are some of the biggest changes in the bill:

New student-loan repayment plans

New borrowers and some existing borrowers will face major shifts in how they repay their loans. The bill scraps many of the existing loan-repayment options and replaces them with just two.

The first is a mortgage-style, standard repayment plan under which borrowers' payments are determined by the size of their loan. Under this plan, borrowers spend between 10 and 25 years repaying the debt.

The second is an income-tied plan, known as the Repayment Assistance Plan or RAP. For decades, the government has offered some version of income-driven repayment, under which borrowers repay debt as a percentage of their income and then have the remainder canceled after a certain period. The latest iteration of the megabill makes a number of key changes to this structure, including:

No more protected income: Right now, borrowers using income-driven repayment have at least 100% of their income protected before payments kick in. Under RAP, payments are based on a borrower's adjusted gross income and the share of income borrowers devote to their payments goes up as their income rises.

Raises the minimum payment: Right now, borrowers with a low enough income can stay current on their loans without making any payments. RAP raises the minimum monthly payment to $10.

Lengthens forgiveness timeline: Under current plans, borrowers have their debt canceled after at least 20 or 25 years of payments. RAP extends that period to 30 years.

Waives unpaid interest and makes a matching principal payment: One of the chief complaints borrowers have had about versions of income-driven repayment is that, in many cases, borrowers' payments don't hit the principal, which means they can see their balances grow. RAP aims to deal with that by waiving unpaid interest and providing a matching principal payment of up to $50 for borrowers who make on-time monthly payments but don't hit the principal.

Overall, the new repayment regime is expected to increase payments for low-income and high-income borrowers.

Borrowers currently enrolled in other versions of income-driven repayment, including income-contingent repayment, pay as you earn, and saving on a valuable education will be moved to another income-driven plan, called income-based repayment, by 2028, which could mean some pay more each month.

In addition to the changes to repayment plans, the bill doesn't extend a COVID-era provision set to expire at the end of the year that makes cancellation under income-driven repayment plans nontaxable. That means borrowers who have loans discharged under these plans starting in 2026 will have to pay taxes on the forgiven debt.

"We're talking about a total overhaul of the student-loan system - that will be enormous," said Bryce McKibben, senior director of policy and advocacy at the Hope Center for Student Basic Needs at Temple University. "We're going to see huge growth of the private student-loan market as a result of this bill."

Tightening loan limits

The bill also tightens limits on the amount students and parents can borrow in a number of ways. Right now, graduate students and parents can borrow up to the cost of attendance of a given program.

The bill, formally known till Tuesday as the One Big Beautiful Bill Act, changes that. Starting in July of next year, graduate students will be able to borrow up to $100,000 total and professional students up to $200,000.

McCann said she expects that this provision "will seriously constrain graduate borrowing in a lot of programs in a lot of schools around the country." In addition, it's likely to push many graduate students toward the private market for their educational financing. That could mean that students coming from low-income families or those with less wealth may face more onerous terms.

The bill also limits borrowing by parents to up to $65,000 total. For years, policymakers and stakeholders have expressed concern about nonwealthy parents taking on unsustainable debt to pay for their children's schooling. Still, even with new limits, some worry parents will struggle. They'll still be able to borrow without a credit check, while the bill eliminates the only income-driven repayment option available to parents.

Accountability

Students, their families and policymakers on both sides of the aisle have said for years that schools should have more "skin in the game," or take more responsibility for poor student financial outcomes. Democrats have repeatedly tried to push forward regulations that require schools, particularly for-profit colleges, to prove they provide financial value.

With this bill, Republicans are taking their own stab at the issue. Starting next year, bachelor's-degree programs in which the majority of graduates don't earn more than the median high-school graduate in their state will be cut off from the federal student-loan program. Graduate programs where the majority of completers don't earn more than the median bachelor's-degree recipient in the same field in their state will also be excluded.

Programs would need to fail this test for two out of three years to lose their eligibility for student loans.

"My expectation is that this provides institutions with a lot more reason to care about what is happening to their graduates in the workforce," McCann said.

Research from her organization, the PEER Center, found that about 2% of students enrolled in associate's-degree programs and less than half a percent of bachelor's-degree recipients would be affected by these regulations.

"What's really clear when you look at the data is that these are outlier programs," McCann said of the programs that would lose access to student loans based on the provision.

Still, there could be unintended consequences. The earnings test only applies to students who graduate. "That does set up a system of perverse incentives for schools," in which they might only focus on getting students to graduation who have a good chance of succeeding in the workforce, said McKibben.

The accountability measures also don't go far enough, some experts say. For one, they don't apply to undergraduate certificate programs, which can have some of the shoddiest outcomes. In addition, the metric being used doesn't take the amount of debt a student takes on into account.

"It's possible that a program leads to a bump in earnings but still leaves people with a significant amount of debt," said Sarah Sattelmeyer, the project director for education, opportunity and mobility at the think tank New America.

Bringing Pell Grant eligibility to short-term programs

The bill makes a major change that lawmakers on both sides of the aisle have, at least philosophically, supported for years and which has been a priority of Secretary of Education Linda McMahon - extending Pell Grant eligibility to shorter-term programs.

(MORE TO FOLLOW) Dow Jones Newswires

July 03, 2025 14:49 ET (18:49 GMT)

MW The 5 huge changes coming for student-loan -2-

The idea is to allow students to use the government's signature college grant program on more workforce-oriented training. Right now, students are only allowed to use a Pell Grant for programs that are at least 15 weeks, or roughly a semester, in duration. The bill cuts that threshold to eight weeks.

Experts and advocates worry the change could lead to a proliferation of programs with poor outcomes. The data on short-term credentials indicate that outcomes are mixed. For many students, the credentials lead to an earnings boost, but often that effect dissipates after a few years.

The past several years have also seen a boom and bust in boot-camp-type programs that have relied on creative ways for students to finance their studies because they aren't eligible for federal financial-aid funding. In some cases, regulators have said, the programs left enrollees worse off.

"By and large we see that, while it's easier for students to complete these shorter-term programs because their finish line is closer, there's very little evidence to suggest they have robust outcomes in the workforce," McKibben said. "Turning on the spigot of federal dollars to short-term for-profit programs is a particularly risky thing to do."

In order for programs to qualify for short-term Pell access, they need to be accredited. Already many boot-camp programs partner with accredited colleges and universities, allowing them to qualify. But that stamp of approval doesn't necessarily guarantee good outcomes for students.

Sattelmeyer said she worries that there are "few meaningful guardrails" in the Republican bill protecting students and taxpayers from poor outcomes. The outcomes are measured over a three-year period, which means schools could scale these programs up quickly with the consequences for students only becoming clear years down the line.

Extending Pell Grant eligibility to people enrolled in shorter-term courses could strain the program's already shaky finances. Though the program functions like an entitlement - students get it if they meet the eligibility requirements - it's not funded like one. Only a portion of Pell Grant funding is mandatory every year. Congress has to appropriate the rest on an annual basis. Over the past few years the Pell Grant has faced a funding shortfall.

"If we see a major uptake in the number of students enrolling," McKibben said, "that does put the Pell Grant program at risk financially."

Raising taxes on university endowments

The size of university endowments and the ways schools do or don't spend them have been major targets for criticism from both the political right and the left for years. But the megabill takes the most aggressive approach yet to dealing with them.

Right now, a relatively small number of schools pay a 1.4% endowment excise tax. Under provisions of the new bill, the number of schools and the amount that some institutions pay could increase.

Some very wealthy colleges could pay an endowment excise tax as high as 8%. Public colleges and colleges with less than 3,000 students are exempt from the provision. The percentage a college pays is determined by the size of their endowment as measured on a per-student basis. Those with endowment funds of $2 million or more per student would pay the highest rate.

"This endowment tax should be read in the context of what is an existing battle with many institutions of higher education," McKibben said. "It is a pretty significant tax hike for these institutions that will have a direct impact on their ability to offer financial aid and scholarships to students."

He expects that if Democrats regain control of government, the higher-education lobby will try to convince lawmakers to repeal or modify the tax set to be imposed by the GOP megabill. The current version of the tax "does not do anything other than try to make the endowments of these colleges smaller," McKibben said.

He could see a reworking of the tax that puts some requirements on schools to maintain a healthy spend-out rate as one possibility, he said. That would make it "less punitive but also achieve some sort of policy goal," McKibben said.

-Jillian Berman

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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July 03, 2025 14:49 ET (18:49 GMT)

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