President Trump signed the One Big Beautiful Bill Act into law on July 4th. This law is the most consequential legislation affecting higher education for the past couple of decades. Like any legislation, it was a product of compromise, but overall, as I predict, it will move higher education and the country in the right direction.
This law does so much that major provisions—like the elimination of Grad PLUS loans—that would’ve made headlines on their own are now easy to overlook. To help make sense of it all, here’s my take on the best and worst parts of the new law.
What are the Best Provisions in the Law?
The new law has five big improvements.
One, it eliminated Grad PLUS loans. Grad PLUS was the worst of the loan programs. Many borrowers took on excessive debt because the program lacked safeguards, such as annual or aggregate borrowing limits. Colleges exploited the program by raising tuition. Taxpayers lost tons of money on the loans, around 24 cents for every dollar lent. The program subsidized wasteful educational spending. And it encouraged credential inflation. In short, eliminating the Grad PLUS is a huge win.
Two, Parent PLUS loans now have maximum caps. Parent borrowing was previously limited only by the college’s cost of attendance, but will now be capped at $20,000 per year and a lifetime limit of $65,000 per student. While we should eliminate the program completely, this at least helps limit overborrowing among parents.
Three, a new income-driven student loan repayment plan was created. I’ll discuss the details of this plan below, but the main advantage of this plan is that it replaces many of the existing repayment plans. Years ago, Congress established one such program—income-based repayment—and authorized the Secretary of Education to establish others. The Obama administration utilized that authority to make loans more generous, and subsequently, the Biden administration attempted to use it as a backdoor method of loan forgiveness by converting loans into delayed grants. The new law reverses all of that, phasing out all repayment plans established by regulation, including ICR, PAYE, and SAVE. Getting rid of SAVE, in particular, is a huge win.
Four, colleges can now limit student borrowing by program. Previously, a college could not realistically restrict student borrowing. This put colleges in a tough spot because even if they recognized that students in some of their programs were borrowing too much relative to their earnings potential, there was nothing they could do about it. And because colleges didn’t have a say in how much students could borrow, it was difficult to argue that we should hold colleges accountable when students borrowed too much. But colleges can now limit student borrowing. While a subtle change that may have flown under the radar, this will open the floodgates for future accountability mechanisms that seek to hold colleges accountable for excessive student loan debt.
Fifth, the law creates a new accountability measure that cuts off federal financial aid for college programs that don’t lead to meaningful earnings gains. Specifically, if the median earnings of a program’s graduates fall below the median earnings of high school graduates in the same state for two out of three consecutive years, that program will lose its eligibility for federal aid.
What are the Worst Provisions in the Law?
My biggest concerns about the law concern the new repayment assistance plan (RAP) for student loans. RAP largely mimics the payment burdens of the Obama-era REPAYE plan. But it contains two features that worry me: it waives any unpaid interest, and it guarantees that a borrower’s principal will be reduced by at least $50 per month when they make the required monthly payment.
This can combine into a sizeable subsidy. For example, if a student’s loan accrues $100 of interest for the month, but their monthly payment is the $10 minimum payment, then the $90 of unpaid interest is waived, and the borrower is credited with another $50 of principal reduction. So a $10 payment from the student costs the taxpayers $140 in this case. This is bad enough, but I really don’t see what purpose these provisions serve. All income-driven repayment plans, including the new RAP, ensure that payments are always affordable for the student, so the unaffordable debt problem has already been solved. And student loans should not be used as a method of subsidizing college. As Susan M. Dynarski and Daniel Kreisman wrote, “The government should seek neither to make nor to lose money from student loans … [student loans] solve a liquidity problem, not a pricing problem. Student loans are appropriate neither for raising revenue nor for subsidizing college.”
The targeting of this subsidy also worries me. Most college education prepares students for productive careers with decent salaries and a reasonable amount of debt. But some college education leaves students with massive debt and poor job prospects. The new repayment plan subsidizes high-debt/low-earnings college educations and will, therefore, result in more of this type of educational malinvestment.
Missed Opportunities
There are other major provisions in the law too, such as workforce Pell and an increase in the tax on college endowment earnings. It’s too soon to say whether these are net positives or net negatives.
There are also some missed opportunities. Earlier iterations would have eliminated subsidized student loans and replaced cost of attendance in the aid formula with the median cost of college. Both of these would have been great additions to the law. Probably the biggest missed opportunity concerns holding colleges accountable for excessive student loan debt. The new accountability system only includes an earnings threshold, but a program could pass that threshold but still load its students with too much debt. Hopefully, the next reconciliation bill will include some debt-based accountability mechanisms.
While there are both positive and negative aspects of the new law, overall, the higher education portions of this law are a solid win.
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Image by Jared Gould, created using Grok and image assets by Marcela Ruty Romero (Adobe Stock, Asset ID# 619020405). Inspired by I’m Just a Bill from Schoolhouse Rock! and House flags.
“Four, colleges can now limit student borrowing by program.”
That will never happen as long as “shared governance” remains because the most value-added programs are the least political, while the very programs that this would trim are the most represented in the Faculty Senate.