Navigating the Shifting Sands of Student Loans: An Analysis of Senate Budget Proposals
The landscape of federal student loans is poised for significant transformation as Congress grapples with budget reconciliation. Both the House and Senate have put forth proposals impacting student loan borrowing limits, repayment options, Pell Grant eligibility, institutional accountability, and the burgeoning field of Workforce Pell. These changes, driven by concerns over escalating costs and program effectiveness, could reshape access to higher education and the financial burden on students and taxpayers alike. This article delves into the key provisions of these proposals, highlighting their potential impact and the ongoing debate surrounding their implementation.
Income-Driven Repayment Overhaul: A Shift from SAVE to RAP
A central point of contention lies in the future of income-driven repayment (IDR) plans. The Biden administration's Saving on a Valuable Education (SAVE) plan, launched in 2023, aimed to consolidate existing IDR options and address systemic challenges. However, its high cost (estimated at over $400 billion over 10 years) and targeting inefficiencies have made it vulnerable. Moreover, court injunctions cast a shadow over its full implementation.
The House package proposes replacing SAVE with the Repayment Assistance Plan (RAP). While both plans aim to simplify IDR by directing borrowers to a single option and eliminating interest capitalization, significant differences exist. Borrowers would generally pay more under RAP compared to SAVE. Furthermore, those currently enrolled in SAVE would transition to a modified version of the existing Income-Based Repayment (IBR) plan, requiring them to pay 15% of their discretionary income for 20 years for undergraduate debt, and 25 years for graduate debt.
Several concerns surround the RAP proposal. First, IDR plans play a crucial role in preventing default among low-income borrowers by providing manageable monthly payments. Surveys indicate that some borrowers struggle with even minimal payments due to extremely low incomes or competing financial obligations. Research suggests that borrowers on IDR plans making $10 monthly payments face a higher short-term risk of delinquency and default compared to those making $0 payments. While there is a shared goal of ensuring borrower engagement in the repayment process to reduce default risk, legislators should be wary of the potential for mandatory minimum payments to push struggling borrowers into default.
Second, RAP introduces "benefit cliffs." A borrower's repayment rate on all their income increases by 1 percentage point for every additional $10,000 earned (up to $100,000). This creates disincentives for income growth, as the increased repayment burden may outweigh the benefits of a higher salary. For example, a borrower with an adjusted gross income (AGI) of $29,950 would end up paying $300 more per year on their student loans if they earned an additional $100.
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Reining in Federal Loan Amounts: Caps, Subsidies, and Graduate Lending
American taxpayers face growing costs from the federal student loan program. The House higher education package makes several significant changes to the amount of federal loans students can borrow. The House package would limit the amount of federal loans students can borrow. The Congressional Budget Office (CBO) estimates that the proposed changes to graduate loans would save $35 billion over the next 10 years, while ending subsidized loans would save $20 billion.
There has been bipartisan support for reforms to graduate lending, including capping graduate borrowing. Policies that balance the need to control excessive borrowing and reduce costs to taxpayers with the importance of preserving access to graduate programs for low- and middle-income students should be considered. Average borrowing for professional degrees was about $154,000 in 2019-2020, with average borrowing for medical degrees coming in at nearly $185,000 and dental degrees at more than $250,000.
The proposal to cap students’ annual federal financial aid at the national median cost of college seeks to improve transparency as to the relative price of programs and encourage pricier institutions to restrain costs. Increasing transparency regarding tuition prices and cost of attendance has been recommended. Nonetheless, legislators should consider the challenge of compiling data that currently does not exist and of annually verifying this data and calculating and disseminating median national cost by program. It may be similarly challenging for undergraduate borrowers to determine how much they can borrow annually without running the risk of hitting their aggregate limit before completing, since most undergraduates will see a significant increase in their annual loan eligibility under this change.
Institutional Accountability: Risk-Sharing and Program Value
The House reconciliation package would establish risk-sharing requirements for institutions participating in the federal student loan program. The proposal would require institutions to compensate the federal government for a portion of unpaid loans, including the cost of interest and principal subsidies. The size of payments would take into consideration programs’ median net total price (not including federal aid), the value-added earnings of recent graduates, and the percentage of students who fail to graduate within 150% of normal time to completion.
As with capping federal financial aid at the national median cost of college, the House’s risk-sharing proposal could be administratively challenging to implement, and it would require data that does not currently exist. Introducing risk-sharing and coupled this with grant aid to institutions effectively serving low-income student populations has been recommended. This proposal would require institutions to pay a small premium based on the portion of their outstanding loan balance that has not seen a principal reduction three years after entering repayment. In addition, the proposal would address concerns that risk-sharing can penalize institutions serving vulnerable student populations by adjusting institutional premium payments based on low-income student enrollment and student-centered spending. Legislators could also consider the potential for debt-to-earnings metrics to offer an alternative policy option for expanding accountability.
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The Senate scrapped a House plan that would require colleges to have skin in the game when it comes to covering unpaid student loans, preferring instead to tie colleges’ access to federal student loans to students’ earnings after graduation. Under the Senate’s plan, undergraduate programs could lose aid eligibility if their students earn less than an adult with a high school diploma. For graduate and professional programs, student earnings would be compared with bachelor’s degree holders.
Student Aid: Deep Cuts Threaten Access and Taxes on Higher Education: Punishing Colleges that Serve Students
The House bill slashes $349.1 billion from federal education and workforce programs-cuts that fall hardest on low-income students. It narrows Pell Grant eligibility, eliminates subsidized loans, and ends key graduate and parent loan programs. The House bill dramatically expands the endowment tax, with rates up to 21% for some institutions, and includes student loan and research income in the tax base. Proposed Medicaid reductions threaten coverage for millions of college students, disproportionately harming those at community colleges and minority-serving institutions.
The Senate bill does not make any changes to Pell Grant eligibility unlike the House, which changed the eligibility requirements for part-time students and the number of credit hours students would need to enroll in per semester to be considered “full-time” and receive the maximum Pell Grant award. The Senate bill also sets higher caps on certain student loan programs than does the House, but the new caps may still fall short of covering a student’s full cost of attendance.
The Definition of "Professional Degree" and its Implications for Healthcare
A significant controversy surrounds the Department of Education's proposed redefinition of "professional degree" within the context of student financial aid. This redefinition, driven by Public Law 119-21 (the "One Big Beautiful Bill Act"), threatens to exclude critical post-baccalaureate healthcare degrees from the higher borrowing limits afforded to "professional degrees."
Under Public Law 119-21, students earning "professional degrees" may borrow up to $50,000 annually and $200,000 aggregate in student loans. In contrast, students earning "graduate degrees" are subject to borrowing limits of only $20,500 annually and $100,000 aggregate. Current regulations include examples of professional healthcare degrees such as Pharmacy (PharmD), Dentistry (DDS or DMD), Medicine (MD/DO), Optometry (OD), Podiatry (DPM), and Chiropractic (DC).
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The proposed change, stemming from the RISE Committee's recommendations and formalized in a Department of Education Notice of Proposed Rulemaking (NPRM) released on January 30, 2026, focuses on doctoral-level degrees. This excludes a wide range of essential healthcare professions requiring lengthy, costly programs for professional licensure, including advanced practice registered nurses, registered nurses, physician assistants, physical therapists, occupational therapists, speech-language pathologists, audiologists, and social workers.
This exclusion has sparked widespread concern, particularly in states like Virginia, which are already grappling with severe healthcare workforce shortages. As of July 2024, all 133 localities in Virginia are federally designated as behavioral health shortage areas, and 96 localities are designated as primary care shortage areas, with 44% of neighborhoods lacking acceptable access to primary care services. Studies indicate a need for thousands more nurses, physical therapists, and mental health professionals to meet the healthcare needs of Virginians.
Limiting access to adequate federal loan amounts would exacerbate this crisis. There is no evidence that individuals in certain professions default more often than those in other professions, raising the question of why there is the need to limit borrowing by profession. The degrees being excluded from the RISE Committee’s definition of “professional degree” are amongst some of the fastest growing jobs in the country. Average job growth is projected to be 3 percent in the next ten years; in contrast, job growth is projected to be 11 percent for physical therapists and audiologists, 14 percent for occupational therapists, 19 percent for speech-language pathologists, 20 percent for physician assistants, and over 40 percent for advanced nursing degree jobs.
Healthcare organizations and professional associations are urging the Department of Education to expand the definition of "professional degree" to encompass a more comprehensive list of post-baccalaureate healthcare degrees. They argue that restricting financial support for these programs will hinder the training of essential healthcare professionals and ultimately compromise patient care.
Workforce Pell: Expanding Access to Short-Term Programs
One provision that has garnered bipartisan support is Workforce Pell, which would extend Pell Grant eligibility to short-term credential programs lasting between eight and 15 weeks. This initiative primarily benefits community colleges, the main providers of accredited short-term programs. However, it could also open the door to unaccredited programs, potentially disrupting the rapidly expanding credential market.
Navigating the Reconciliation Process: Uncertainty and Potential Outcomes
As the House and Senate work to reconcile their respective budget proposals, the final outcome remains uncertain. Negotiations will likely center on the overall spending target of the bill. The House plan aims to save approximately $350 billion over 10 years, while the Senate bill targets savings of around $300 billion.
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