What Could the Proposed Federal Budget Mean For Student Loan Borrowers?

The House passed a budget blueprint that could increase monthly student loan payments and eliminate critical student protection programs.

As the government approaches its March 14 deadline to pass a federal budget, a Republican budget resolution, which calls for $4.5 trillion in tax cuts and $2 trillion less in federal spending, was narrowly passed late Tuesday. The plan includes directing the House Education and Workforce Committee to cut $330 billion in the next 10 years. The committee oversees elementary, secondary, and postsecondary programs.

“The American people have been clear that they want to end wasteful government spending. This budget resolution delivers on that promise while providing relief to working families, students, and small businesses,” Tim Walberg (R-MI), Education and Workforce Committee chairman, said in a statement.

Experts said that to save that much, the House committee would likely have to cut tax benefits for students, scale back key grants and loans or rework student loan repayment and forgiveness programs.

What’s On The Chopping Block?

A document reportedly released by the House Ways and Means last month outlined some student loan and grant programs the committee could possibly cut to reach its savings goal.

Reporesentatives could eliminate tax benefits for higher education students and borrowers, such as the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit (LLC), and tax deductions of interest on student loans. In addition, one proposal would make all scholarship and fellowship income taxable.

The new budget could also repeal former President Joe Biden’s Saving for a Valuable Education (SAVE) plan and eliminate other income-driven repayment (IDR) plans. Instead, borrowers would only have two repayment options: a standard repayment or a new IDR plan.

Officials at The Institute For College Access and Success (TICAS) said that reworking the income-driven repayment plans is likely going to be part of the plan to cut spending because of the high target amounts. Recently, the Department of Education closed applications for those plans.

House Republicans proposed a new IDR plan last year that would increase borrowers’ monthly payments by almost $200 on average, according to The Institute For College Access and Success (TICAS) analysis.

“Borrowers are just in a really tough spot, and we know a lot of folks are already struggling to afford monthly payments even under a more affordable plan, and so any increase in monthly payment expectation is going to be hard for a lot of folks,” said Michele Zampini, senior director of college affordability at TICAS.

In addition, the proposal suggested reforming Public Service Loan Forgiveness (PSLF), “including limiting eligibility for the program.”

Pell Grants could be reformed by capping grants at the median cost of attendance or expanding eligibility to short-term credential programs, which the nominee to head of the Department of Education said she would support.

The critical loan programs that allow parents to share the cost of higher education, PLUS and grad PLUS loans, could also be eliminated as part of the budget cuts.