MW GOP megabill poised to change the way Americans borrow and repay student loans

By Jillian Berman

If the domestic-policy bill passes, repayment plans and borrowing limits on some types of loans will change

Republican members of Congress are set to make fundamental changes to how families finance college and repay their student loans.

As part of their mega tax and spending bill, GOP lawmakers are looking to, among other things, reshape student-loan repayment, put more restrictive limits on some types of borrowing, and create new accountability measures for colleges. The Senate is inching toward passage of its version of the bill. If it's passed, the bill will then head to the House. Though the specifics of each chamber's proposals differ slightly, if the megabill goes through, it's all but certain that the higher-education financing system will undergo big changes in the coming years.

"This is really doing this large upheaval of the system where a lot of factors that go into families' decision-making are changing," said Sarah Sattelmeyer, the project director for education, opportunity and mobility at the Higher Education Initiative at New America, a think tank. "Understanding people's borrowing behavior and attendance and how institutions are going to react is something that no one has a great grasp on because it's so huge and so complicated."

Typically, these kinds of drastic changes would take place through a longer-term legislative process, but Republicans are pushing them through now in part because they have the opportunity. In addition, changes to the higher-education finance system are expected to provide significant savings - to the tune of more than $300 billion over 10 years - which Republican lawmakers are hunting for as they try to pay for tax cuts, while satisfying the party's deficit hawks.

"The thing that is clearest about these reconciliation bills is that both the House and the Senate were really looking for things that would score as financial savings," said Clare McCann, managing director of policy and operations at American University's Postsecondary Education and Economics Research Center. "I can't read anyone's mind, but it is pretty clear that was a primary reason for revisiting some of these things."

The changes come as borrowers are already facing an unprecedented amount of upheaval. The Education Department restarted student debt collection earlier this year after a five-year freeze, putting defaulted student-loan borrowers at risk of facing some of the harshest consequences of the student-loan system. Meanwhile, millions more borrowers are expected to default on their loans later this year. In addition, about 8 million borrowers are stuck in limbo as the courts weigh the legality of the payment plan.

Amid that backdrop, here are some of the biggest changes that congressional Republicans are proposing for the student-loan system.

Student-loan repayment

Both bills would scrap many of the myriad federal student loan repayment plans on the market and leave new borrowers with just two options for paying their loans.

The first is a standard repayment plan that functions like a mortgage - where the payment period is determined by the size of a borrower's loan. Under this plan, borrowers would repay their loans in 10 to 25 years.

The second is an income-tied plan. Already, there are several versions of what's known as income-driven repayment. Under these plans, borrowers pay a percentage of their income and have the remainder of their debt canceled after at least 20 years of payments.

Republicans would make some key changes to this structure. Under their new plan, no income is protected before payments kick in. Right now, borrowers on income-driven repayment pay a percentage of their income above at least 100% of the poverty line.

Currently, borrowers with extremely low incomes do not have to make payments in order to stay current on their loans. Under the proposals in the megabill, they would need to make a minimum payment of $10 a month.

Congressional Republicans are also proposing to raise the percentage of income borrowers pay as their income rises. Under current income-driven plans, the share of income borrowers devote to their payments is the same regardless of how much money they make.

The new Republican plan, known as the Repayment Assistance Plan or RAP, would extend borrowers' time in repayment to 30 years before they receive cancellation, up from 20 or 25 years under current income-driven repayment options.

Finally, if a borrower's income-tied payment doesn't hit the principal, the government would waive the unpaid interest. In addition, borrowers who make on-time monthly payments but don't cover at least $50 in principal would receive a principal matching payment of up to $50 a month.

"For low-income borrowers, it is going to be significantly more expensive," McCann said. "The combination of a few things that are less generous, particularly for the lowest-income borrowers, is going to make it difficult for them to be able to afford their payments and may increase the likelihood of student loan defaults."

Borrowers at the high end of the income spectrum could also face higher payments, Sattelmeyer said.

Regardless of borrowers' individual circumstances, Republicans' proposals will usher in a seismic change to the system overall. That could further strain the student loan servicing system, which has struggled under the weight of several other shifts over the past several years and relatively limited funding.

Borrowers who take on loans after July 2026 will only have access to these two plans. Both bills would move current borrowers in other versions of income-driven repayment, including income-contingent repayment, pay as you earn and SAVE will be moved over to a version of income-based repayment at some point in the future. The Senate bill starts that process in July 2028. Some of these borrowers may pay more each month as a result of the change.

"Any big system change comes with a lot of logistical hurdles you have to communicate to borrowers and servicers," Sattelmeyer said. "That is going to be a big task. We know that, when that happens, sometimes people fall through the cracks."

As part of the megabill, congressional Republicans are proposing to invest more money in the administration of the student loan program, which could help mitigate some of these challenges, Sattelmeyer said.

"These funds are really incredibly necessary both to implement the provisions of whatever passes in reconciliation, but also just in general for the admin of the loan program," she said.

Capping parent lending

Right now, parents and graduate students can borrow up to the cost of attendance at a given school. People on both sides of the political spectrum have expressed concern about this dynamic. Congressional Republicans are proposing to change it by capping the amount these groups can borrow.

In the House bill, parents can borrow a maximum of $50,000 per family through the Parent Plus program only after their children exhaust their own borrowing. The Senate bill caps parent borrowing at $20,000 per student per year with a $65,000 lifetime limit.

For graduate students, the House bill caps borrowing at $100,000 for graduate students and $150,000 for students studying for professional degrees. The Senate bill increases the lifetime limit for professional students to $200,000.

"The more unlimited borrowing, more unlimited forgiveness environment is not working well, but I think it can be hard to know the exact right place to place those cut offs and limits," Sattelmeyer said. Typically, those kinds of things would be decided through a longer legislative process. Now, those negotiations are "just happening in a much more behind-the-scenes and much more rapid fashion," she added.

When it comes to parent borrowers, capping their eligibility for loans doesn't address the underlying issues with the Parent PLUS program, Sattelmeyer said. For years, advocates have expressed concern that some low-income parents are forced to rely on unsustainable levels of debt to pay for their kids' school. In some cases, that's because schools used the PLUS program as a tool to encourage students to enroll. In other cases, it's because their children attend less wealthy schools that may not have the resources to provide significant financial aid.

The Republican proposals continue to make loans to parents who are unlikely to be able to repay. The proposals don't include additional resources to help pay for school for non-wealthy students and colleges, Sattelmeyer said. They also eliminate the only income-tied payment plan currently available to parent borrowers.

Tightening lending for graduate students

Republican lawmakers are interested in tightening graduate lending in order to push universities to rethink what they charge for certain programs and minimize high debt loads for degrees that don't come with much payoff. The impact of the proposed changes will likely be mixed, McCann said.

"We anticipate there will be a significant turn toward the private student loan market," she said. "In some cases, that might help to rightsize the amount of debt that borrowers are taking on for their programs," she added. But in other cases - like medical school where the return on investment is "extremely high" - the caps will reduce the amount that students could borrow from the government, she said.

If students are pushed toward the private market to fund these kinds of degrees, they could become more expensive for less-wealthy students who could be subject to worse loan terms.

"The question of where to set that level so that you're ensuring students are still going to have access to the kinds of educational programs that are really going to pay off for them is a more challenging piece of the puzzle," McCann said.

Accountability

Both versions of the bill take steps toward trying to hold colleges accountable for delivering programs of value.

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July 01, 2025 10:53 ET (14:53 GMT)

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