GOP Passes Trump’s Education Overhaul And Student Loan Plan As Critics Cry Foul – Financial Freedom Countdown

A sweeping Republican-backed education and tax bill, endorsed by Donald Trump and recently passed by the House, promises to overhaul the U.S. student loan system and financial aid programs.

Branded by some conservatives as a long-overdue reform, critics warn the plan could upend college affordability for millions; especially low-income families, graduate students, and current borrowers.

We break down what the bill includes; and what it could mean for students, parents, and universities.

Most Student Loan Repayment Plans Would Be Eliminated

One of the bill’s most disruptive provisions is its plan to scrap the vast majority of existing repayment options. Popular income-driven plans like SAVE (Saving on a Valuable Education), PAYE (Pay-As-You-Earn), and ICR (Income-Contingent Repayment) would be terminated.

Instead, only 2 plans would be available. One would be the standard plan and one linked to income

– Standard plan would be similar to current federal consolidation loans and require fixed monthly payments spread out over 10 to 25 years.

– The new repayment plan, called Repayment Assistance Plan (RAP), which pegs payments to income will be notably less generous than existing plans. Payments would be spread over 30  years.

For new borrowers, RAP would be the only Income driven repayment option available. Existing borrowers can maintain access to IBR or opt-into RAP.

The New RAP May Increase Monthly Payments

RAP would set borrower payments between 1% and 10% of gross income, depending on earnings. While the plan forgives debt after 30 years of payments (up from 20–25 under Biden’s plans), it introduces a minimum $10 monthly payment and eliminates $0 payments for the lowest earners.

There would be no more monthly payment deferment for economic hardship or unemployment.

The amount of time in discretionary forbearance would be limited to 9 months in a 24-month period.

According to borrower advocates, the average college graduate would pay nearly $3,000 more per year compared to Biden’s SAVE plan.

However, an enticing feature is that RAP would waive unpaid interest each month instead of adding it back to a borrower’s balance, as long as enrollees make their minimum payment.

Graduate and Parent PLUS Loans Would Be Gutted

The bill terminates Grad PLUS loans altogether and imposes strict new limits on Parent PLUS loans, including:

– A $50,000 lifetime cap for parents across all children.
– A rule requiring students to max out unsubsidized loans before parents can borrow.

New Borrowing Caps Could Push Students Toward Private Loans

Under the proposed law:

– Undergrads can borrow up to $50,000 total (versus $31,000–$57,000 now, depending on dependency status).
– Graduate students are capped at $100,000.
– Professional students, such as those in medical or law school, would face a $150,000 limit.
– Overall lifetime student loan limit: $200,000 across all loan types.

Experts fear these constraints will force many students; especially those in expensive fields like medicine to turn to private lenders, who typically charge higher interest rates and offer fewer borrower protections.

Pell Grant Eligibility Tightened, With New Academic Hurdles

To qualify for the maximum Pell Grant, students would now need to enroll in at least 30 credit hours annually, up from 24.

Part-time students would be disqualified entirely if they fall below half-time status.

Additionally, eligibility would be denied for students with a Student Aid Index (SAI) exceeding twice the maximum grant award; a change that could disqualify over 60% of current recipients, per estimates.

Some Short-Term Training Programs Get a Boost

In a nod to workforce development, the bill expands Pell eligibility to include short-term programs as brief as 15 weeks, provided they lead to certifications in “high-wage, in-demand” industries like trucking or nursing assistance.

While this may benefit some jobseekers, critics warn it sends a message that short credentials are preferable to traditional college degrees.

New Financial Aid Formula Could Penalize Students at Elite Schools

Perhaps the most bewildering change: the bill proposes basing financial aid not on the cost of a student’s chosen school, but on the national median cost for similar programs.

So, a student studying history at Harvard could receive aid calculated based on average history program costs nationwide; not Harvard’s tuition, potentially slashing available support.

Analysts have raised doubts about whether the Education Department even has the capacity to collect and process the data this model would require.

Financial Aid Will No Longer Reflect a Student’s Real College Costs

A shift from individual school costs to national program medians means aid offers could become increasingly divorced from what students actually owe.

That change could particularly hurt those attending top-tier or higher-cost institutions.

For families choosing between state and private colleges, the new model may nudge them toward lower-cost, less selective options.

Schools Face Financial Penalties for Student Loan Defaults

A controversial “risk-sharing” provision would require colleges to repay the government if their former students default on loans.

Institutions with higher default rates could even lose access to federal student aid programs.

“Institutions that continue to saddle their students with debt eventually face increasing penalties and risk loss of access to federal student aid,” the House education committee said.

While designed to increase accountability, education experts fear it could dissuade schools from admitting low-income and marginalized students, who statistically face greater repayment challenges.

“Promise Grants” Offered as a Sweetener for Colleges

To balance out risk-sharing penalties, the bill includes a new grant program for colleges that:

– Enroll and graduate more low-income students.
– Guarantee a maximum total price for students’ degrees up front.

Still, early analyses suggest most schools would lose more in penalties than they gain through these grants.

Elite Colleges Face Steep New Endowment Taxes

Currently, only the wealthiest private colleges; those with at least 500 students and $500,000 in endowment assets per student pay a 1.4% excise tax on their endowments.

The new Republican bill replaces that flat rate with a tiered structure ranging from 1.4% to 21%, mirroring corporate income tax brackets.

“It’s no secret that colleges have exploited the availability of uncapped federal lending and generous forgiveness programs to raise prices rather than improve access and affordability,” said Rep. Tim Walberg, who chairs the Education and Workforce Committee.

House Republicans say the change targets universities they claim act like corporations, but critics warn it could undermine schools’ ability to support low-income students.

Public Service Loan Forgiveness (Mostly) Survives

One surprise: the Public Service Loan Forgiveness (PSLF) program remains largely intact.

Borrowers working in government or nonprofits can still qualify for loan forgiveness after 10 years of payments.

The only major tweak? Medical and dental residents would no longer be able to count their residency payments toward PSLF.

Forbearance and Deferment Options Slashed

The bill eliminates key borrower safety nets:

– No more deferments for unemployment or economic hardship for loans issued after July 2025.
– Forbearance limited to 9 months every 24 months; down from more flexible options today.

However, one small win: borrowers would now have two chances to rehabilitate a defaulted loan instead of one.

Prohibiting Student Loan Forgiveness Through Regulatory Action

Although President Biden was consistently rebuffed by the courts including the Supreme Court; he continued pushing through his student loan forgiveness agenda.

Even after the Democrats lost the elections, Biden continued to aggressively seek loan forgiveness.

The reconciliation bill would prohibiting the Department of Education from enacting new broad student loan forgiveness programs through regulatory action, as President Biden did.

No Tax Relief on Cancelled Student Debt

The bill would also not allow tax relief on cancelled student debt or student loan forgiveness. Any such event would be considered as a taxable event with the gain, depending on the program.

The bill would however preserve tax relief for student loan discharges based on a student loan borrower’s death or total and permanent disability.

The Department of Education May Struggle to Implement It

The sweeping changes would require an overhaul of aid calculations, data systems, and repayment structures; but critics warn the Education Department may not be equipped for the job following recent layoffs.

Republicans Cheer Education Reforms

Education and Workforce Committee Chair Tim Walberg (R-Mich.) in a statement on Thursday said, “It’s time we stopped asking taxpayers to foot the bill for our broken student loan system that has left borrowers in trillions of dollars of debt and has caused college costs to balloon. It’s time we stopped asking a factory worker in Michigan or a rancher in Texas to subsidize the student debt of a lawyer in Manhattan. I urge my colleagues in the Senate to end the status quo and get this bill to the President’s desk.”

Senator Bill Cassidy (R-La.), chair of the Senate Health, Education, Labor, and Pensions Committee said, “President Trump and Secretary McMahon are making progress, including fixing our broken student loan program. But, congressional action is needed to create lasting change.”

Advocates Warn of a Return to a More Punitive System

Borrower rights groups say the bill threatens to undo a decade of progress in making student loans more flexible and forgiving.

Advocates criticized the shrinking access to federal financial aid, cutting or eliminating grants for Pell recipients, and placing enormous pressure on families to fund their children’s’ education budgets.

Could the Bill Become Law?

While the bill has passed the House, its future in the Senate remains uncertain.

Democrats have sharply opposed the legislation, and Republican Senators want more cuts to the House bill in the current form.

But with growing calls for accountability in higher education; and Americans weary of the student loan forgiveness methods employed by the Biden administration, some elements of this bill could resurface in future policy battles.

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