Republican lawmakers are exploring controversial proposals targeting higher education to offset the cost of extending Trump-era tax cuts.
These include potentially taxing college scholarships, eliminating student loan repayment plans, and significantly increasing taxes on university endowments.
The proposals, currently circulating within House committees, are part of a broader effort to identify spending cuts and revenue streams. While still in the early stages, and with no guarantee of implementation, the mere consideration of such measures has sparked widespread concern among higher education advocates. They argue that these changes could dramatically reshape the landscape of college affordability and accessibility.
“It’s shocking to me because this amount of cuts is not happening in reaction to like a budget crisis, like a recession. This really feels different in the sense that it is not something that there is an external push or a need for. So, it feels more ideological in a way,” said Jessica Thompson, a higher education policy expert with The Institute for College Access and Success.
Here is a look at possible federal budget cuts that would affect higher education under the Trump administration:
Cutting programs that help students pay off college debt
The U.S. House Committee on Education and the Workforce has suggested several possible ways to overhaul student loan programs. Some would reduce student access to federal aid for college.
On the chopping block potentially are several plans students can opt into to repay their students loans, including the SAVE plan introduced by the Biden administration. That plan doesn’t require borrowers to make payments if they earn less than 225% of the federal poverty line — $32,800 a year for a single person — and prevents interest from adding to balances as long as borrowers make their monthly payments. The SAVE plan was already put on hold after Republicans challenged it. Some plans do not appear to be targeted, including one that caps loan payments based on borrowers’ income level.
Another possible change would give borrowers additional opportunities to recover from defaults. While they currently can rehabilitate their loans just once, allowing them to make a certain number of consecutive payments to get out of default, the proposal would allow them to go through that process twice. The committee projected the new process could save the government millions of dollars but did not spell out how.
The timing is uncertain on when any of these proposals could surface. They could be considered as soon as this spring in a process known as budget reconciliation that would allow Republicans to squeeze proposals through Congress purely on party-line votes. That would not be easy in the House, where Republicans hold the majority by just a few seats.
An end to tax-free status for scholarships
Scholarships and fellowships have been exempt from taxes as long as they are used for tuition and related expenses. That would change under another proposal that’s up for consideration.
The changes could create new financial burdens for students and families, advocates say.
“There’s been great progress in bringing down the costs of higher education. Adjusted for inflation, public university tuition is less now than it was ten years ago,” said Craig Lindwarm, senior vice president of governmental affairs with the Association of Public and Land-Grant Universities. “But as we look at some of the proposals that are options, many would increase costs on students and families, and I think (the proposals) are heading in the direction that most don’t want to see, which is increasing expenses on students and families.”
