House Passing GOP Budget Plan Is Likely Horrendous News For Student Loan Borrowers
The U.S. House of Representatives approved a Republican budget framework that fulfills a key priority of President Donald Trump’s second-term agenda. The 216-214 vote advances a budget plan that paves the way for extending Trump-era tax cuts and enacting deep spending reductions. House Speaker Mike Johnson (R-LA) and Senate Majority Leader John Thune (R-SD) pledged at least $1.5 trillion in federal spending cuts over the next decade to secure support from conservative holdouts, according to a Forbes article. What could those massive cuts mean for Americans with student loans?
What May Worry Student Loan Borrowers
While specific cuts will be hashed out in coming weeks, education and student aid are clearly in the crosshairs, according to a 50-page House document released in February. Given the proposals circulating in GOP budget circles, student loan borrowers should prepare for potential rollbacks of key benefits and protections.
For Student Loan Borrowers, Income-Driven Repayment Plans May Be At Risk
One potential target is the system of income-driven repayment plans that cap monthly student loan bills based on a borrower’s income. The Biden administration launched the new SAVE plan, a more generous IDR option that lowers monthly payments and forgives unpaid interest, benefiting millions of borrowers. A recent court injunction has left student loan borrowers enrolled in SAVE in limbo, but Republican lawmakers are eyeing its repeal to trim costs. The House budget blueprint explicitly calls for repealing Biden’s SAVE plan and streamlining IDR, a move projected to save about $127 billion over 10 years, according to Inside Higher Ed.
For borrowers, rolling back IDR reforms could significantly raise monthly payments and delay loan forgiveness. Under SAVE, many low-income borrowers saw their required payment drop to 5% of discretionary income and unpaid interest wiped out each month. Reverting to older, less generous plans (or a single new plan with stricter terms) means borrowers would pay more out-of-pocket.
According to one analysis reported by Inside Higher Ed, replacing SAVE with a narrower plan could increase annual payments by over $2,700 for some borrowers. It could also extend repayment periods. In a worst-case scenario, time-based loan forgiveness under IDR might be eliminated entirely for future borrowers, according to the Committee for a Responsible Federal Budget, meaning loans would only be forgiven through programs like Public Service Loan Forgiveness or not at all.
Student Loan Interest Deduction Could Be On The Chopping Block
Another potential casualty of the budget cuts is the student loan interest deduction, which is a tax break that has helped millions of borrowers. Currently, taxpayers earning up to about $75,000 (single) or $155,000 (joint) can deduct up to $2,500 of student loan interest paid each year as an above-the-line deduction on their federal tax return. This deduction effectively lowers a borrower’s taxable income, providing modest annual savings (worth up to $550 for those who claim the full $2,500 at a 22% tax rate).
Republicans have signaled that such tax benefits could be rolled back to raise revenues. The House Budget Committee’s menu of cuts includes a proposal to eliminate the student loan interest deduction, estimated to save about $30 billion over a decade. If enacted, borrowers repaying loans would lose a valuable benefit. According to prior IRS data, roughly 12 million taxpayers took advantage of it in recent years.
For Student Loan Borrowers, Public Service Loan Forgiveness May Also Be In The Crosshairs
PSLF may also face dramatic changes. As far back as the Trump administration’s 2018 budget, proposals were made to end PSLF for new borrowers, citing its cost and fairness (or lack thereof to those outside public service). Now, with a $1.5 trillion savings target, GOP lawmakers are again scrutinizing PSLF’s future. Trump already signed an executive order targeting PSLF and the Department of Education has commenced negotiated rulemaking targeting, among other programs, PSLF.
The House budget framework suggests reforming PSLF and limiting eligibility, often a thinly veiled step toward ending the program for future borrowers. While current participants might be grandfathered in, Republicans could bar new loan borrowers (e.g., those taking out loans in coming years) from enrolling in PSLF. The nonpartisan Committee for a Responsible Federal Budget estimates that eliminating PSLF for new borrowers would save about $30 billion over 10 years.
If PSLF is wound down, future graduates might think twice about entering lower-paid public sector jobs, knowing their large grad school loans won’t be forgiven after a decade. Existing borrowers on track for PSLF might not be directly affected, but new limits or caps would diminish the incentive that PSLF provides for critical public service roles.
Other Student Loan Borrower Protections And Benefits Under Scrutiny
Virtually every facet of student aid is potentially on the table as Congress hunts for savings. Besides the headline items above, borrowers should watch for several other possible changes:
End of Subsidized Loan Interest Benefits: Currently, the government pays interest on subsidized federal loans while an undergraduate is in school and during grace periods, preventing interest from accruing. Ending this subsidy is a possible cost-saving move. If adopted, new students would accrue interest on all loans while in school, leaving them with more significant balances at graduation. This idea has been floated in past budget proposals and is again under consideration.
Caps on Graduate and Parent PLUS Loans: Graduate students and parents can borrow up to the full cost of attendance through federal PLUS loans. Republicans argue that unlimited borrowing fuels tuition hikes. The budget talks have included sunsetting or capping Grad and Parent PLUS loans for new borrowers.
Tighter Rules on Loan Forgiveness and Discharge: The Biden administration expanded programs that discharge loans for borrowers defrauded by their schools or whose schools closed abruptly. Those regulations, known as Borrower Defense to Repayment and Closed School Discharge, could be rolled back. Repealing Biden’s borrower defense and closed-school discharge rules will save several billion dollars. Similarly, the temporary tax-free status of student loan forgiveness (in effect through 2025 under the American Rescue Plan) is unlikely to be extended by this Congress. Any loan balances forgiven after 2025 (for example, remaining balances forgiven under IDR plans) would once again be treated as taxable income, hitting borrowers with a tax bill in the year of forgiveness.
The Upshot For Student Loan Borrowers
The common thread in all these potential changes is a shift of costs and risks from the government to students and families. For now, these are proposals and possibilities. The House-passed budget is a blueprint; changes to student loan programs must still be hammered out in detailed legislation. However, the informal agreement to cut at least $1.5 trillion in spending is likely bad news for student loan borrowers.