Republicans Propose $330 Billion In Cuts That Could Reshape Federal Student Aid

House Republicans unveiled a budget blueprint this week that calls for $330 billion in deficit reduction for education-related programs. GOP lawmakers hope to offset the costs of massive tax cuts, which analysts estimate could easily exceed $4 trillion, with dramatic cuts in federal spending, along with increasing taxes in certain targeted areas.

The budget blueprint is a critical first step as lawmakers initiate the process to pass massive tax and spending legislation through reconciliation. The reconciliation process would allow Republican lawmakers to pass legislation on strict party-line votes based on their narrow majorities in the House and Senate, without having to rely on Democratic votes in the Senate to overcome the filibuster. Both parties have used the reconciliation process in recent decades to pass budget-related legislation with narrow majorities.

The budget blueprint provides a high-level overview of federal spending categories that lawmakers want to reduce and directs House committees to develop options for meeting the deficit reduction goals. The blueprint calls for $330 billion in deficit reduction for the Committee on Education and the Workforce, which oversees the Department of Education and federal student loan and aid programs.

The next step in the reconciliation process is for the committees to come up with specific legislative proposals to meet the deficit reduction goals. A number of programs impacting federal student loan repayment and forgiveness programs are expected to be targeted. Here’s a breakdown.

Key student loan forgiveness and repayment programs on the chopping block

According to a House Budget Committee memo obtained by Politico last month, several federal student loan programs could be at risk of being axed in the upcoming reconciliation bill. This includes the following:

• Repeal of the SAVE plan, which President Biden launched to reduce payments and halt runaway interest accrual. 

The Saving on a Valuable Education (SAVE) plan is currently blocked by a federal court due to an ongoing legal challenge, but Republicans may short-circuit the legal challenge by simply repealing the program through legislation, which lawmakers say would save more than $127 billion (nearly half of the $330 billion outlined in the budget blueprint) over 10 years. 

Eliminating the SAVE plan would effectively increase the monthly student loan payments for many borrowers, who would have to move to other, potentially more expensive repayment plans.

• Repeal of other IDR plans, including ICR, IBR, and PAYE. 

The proposal would replace Income Driven Repayment (IDR) plans, including Income Contingent Repayment (ICR), Income Based Repayment (IBR), and Pay As You Earn (PAYE), with a new IDR plan. Although this new option would use a similar repayment formula as the PAYE plan and include some unique benefits, such as an option for principal-directed payments under certain circumstances, the program would do away with student loan forgiveness after 20 or 25 years in repayment. 

Instead, borrowers would only qualify for loan forgiveness after paying at least the amount they would have paid under a 10-year Standard repayment plan — something that many borrowers, particularly those who are low-income, may never do. According to the memo, the changes would only apply “for loans originated after June 30, 2024,” suggesting that current borrowers in repayment may be able to retain access to existing IDR plans (although this is not final).

• Unspecified changes to eligibility for the Public Service Loan Forgiveness (PSLF) program.

• Repeal of Biden-era regulations governing the Borrower Defense to Repayment program and Closed School Discharge program.

Both of these programs expanded access to debt relief for student loan borrowers who were defrauded or misled by their school or were unable to complete their degree or certificate program due to their school’s closure.

• Limit the Department of Education’s authority to enact or expand student loan forgiveness opportunities through new regulations. 

“This option would limit the authority of the Education Department to issue regulations that would increase the cost of federal student loans or that would have economically significant effects (have an annual effect on the economy of $100 million or more or that would adversely affect the economy in a material way),” says the memo.

Direct PLUS, Graduate PLUS, and Pell grants at risk

The House Budget Committee memo also calls for sunsetting the Direct PLUS and Graduate PLUS federal student loan programs. Direct PLUS loans are issued to graduate and professional students, while Parent PLUS loans are issued to the parents of undergraduate students. Borrowers can take out loans under these programs up to the full cost of attendance.

“This option would eliminate parent PLUS loans, which are offered to parents of dependent undergraduate students, and grad PLUS loans, which are offered to graduate students and students enrolled in professional programs,” says the memo. “This option would generally eliminate such loans to new borrowers beginning on July 1, 2025, and would eliminate the program altogether by 2028.”

Student loan borrower advocates have warned that eliminating these programs would force many American families to rely on private student loans to cover the remaining costs of a degree program. Private student loans generally have higher interest rates, fewer repayment plan options, less flexibility during times of hardship, and no access to federal student loan forgiveness and relief programs.

House Republicans are also reportedly considering modifying Pell Grant caps, ending interest subsidies on federal student loans while a borrower is enrolled in school, and potentially making changes to work-study programs, as well.

Changing tax treatment for some student loan borrowers

Republican lawmakers are considering a number of changes to the tax code that could directly impact students and borrowers. At the top of that list is eliminating the student loan interest deduction, which allows many borrowers to deduct up to $2,500 per year on their federal tax return for student loan interest paid.

“Taxpayers can deduct up to $2,500 of interest paid on student loans from their taxable income,” says the memo. “This option would eliminate the deduction for student loan interest.”

GOP lawmakers are also considering taxing scholarships and fellowship income, which has historically been exempt from taxation. And Republicans may move to eliminate the tax-exempt status of nonprofit hospitals, which would cause millions of student loan borrowers working in the healthcare field and pursuing PSLF to be cut off from relief if their employer is no longer a qualified nonprofit organization under the tax code.