House Republicans are proposing significant changes to federal student loan policies as part of a broader effort to cut government spending, a move that could increase costs for borrowers. Among the ideas under consideration is eliminating the in-school interest subsidy on federal loans, which currently prevents interest from accruing while borrowers are enrolled in school.
Why It Matters
Under current policy, the government covers the interest on subsidized loans while borrowers are enrolled at least half-time in school, preventing debt from ballooning before repayment begins.
Ending this arrangement would mean that interest would accrue during the borrowing period, effectively increasing the total cost of loans. Education advocates argue that eliminating the subsidy would disproportionately affect low-income students, many of whom rely on these loans to access higher education.
What To Know
The potential policy shift comes amid Republican attempts to identify trillions of dollars in budget savings to offset tax cuts and other priorities. The proposal to end this subsidy, detailed in House GOP discussions, reflects a broader focus on reducing government involvement in student loan programs.
Discussions have included limiting the total amount students can borrow and tightening eligibility criteria for non-citizens.
The Public Service Loan Forgiveness program (PSLF) and income-driven repayment plans, key pillars of the Biden administration’s student loan policies, are also targets for potential cuts.
The national deficit, which arises when the federal government spends more than it collects in revenue, was $1.83 trillion in fiscal year 2024, an increase of $138 billion from the previous year.
According to data from the U.S. Department of Treasury, the deficit has grown due to rising federal spending on programs like Social Security, health care and debt interest outpacing revenue growth. The U.S. government has operated in a deficit since 2001.
Republicans argue that policies such as eliminating the in-school interest subsidy on federal loans are necessary to address the deficit. By reducing federal spending on programs like student loans, lawmakers aim to curb the annual deficit and slow the growth of the national debt. Critics, however, argue that such cuts place a disproportionate burden on lower-income Americans while leaving other high-cost programs untouched.
What People Are Saying
Federal Student Aid, an office of the U.S. Department of Education, explains interest and fees for certain federal loans: “If your loans are subsidized, you are not responsible for paying the interest that accrues while you’re in school. If your loans are unsubsidized, you’re responsible for all the interest that accrues, even while you’re in school.”
Aissa Canchola Banez, policy director at the Student Borrower Protection Center, said in a statement: “The American people are demanding that policymakers take action to lower the costs of living, make college more affordable, and alleviate the burden of student debt. Instead of working to address the student debt crisis and reduce these costs, congressional leaders are pushing dangerous cuts that will cause monthly payments to spike and make paying for college more expensive and risky.”
Mike Johnson (R-LA), speaker of the house, said on X: “Republicans have a real opportunity in the next two years to make meaningful spending reforms to eliminate trillions in waste, fraud, and abuse, and end the weaponization of government. Along with advancing President Trump’s America First agenda, I will lead the House Republicans to reduce the size and scope of the federal government, hold the bureaucracy accountable, and move the United States to a more sustainable fiscal trajectory.”
What’s Next
The House Budget Committee and GOP leadership are currently refining their reconciliation instructions, which will set the revenue targets and shape the final legislative package. With a slim Republican majority, party leaders face the challenge of securing enough support within their caucus to advance the proposed cuts.
At the same time, Democrats and advocacy groups are expected to mount significant opposition, both in Congress and in the court of public opinion, as the debate over the future of federal student loan programs intensifies.
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