The House Education and Workforce Committee’s “Student Success and Taxpayer Savings Plan” would drastically change federal student loans and financial aid. This is a Congressional Republican initiative through a budget reconciliation bill in the House. Senate changes and Presidential approval are still needed. This poses significant risks to colleges.
This plan could potentially take effect by the 2025-2026 academic year or shortly after.
Key Risks for Colleges:
- Fewer Pell Grants: Millions of low-income students could lose or see reduced Pell Grants due to stricter “full-time” definitions and eligibility cuts.
Impact: Enrollment drops, pressure for more institutional aid.
- Higher Borrowing Costs: The elimination of subsidized federal student loans means undergraduates accrue interest immediately, increasing debt. Loan caps will push students to riskier private loans.
Impact: Increased student financial strain, higher default risk.
- Weakened Repayment Safety Nets: Ending the SAVE plan and limiting other income-driven options will increase monthly payments for millions, raising default potential.
Impact: Higher Cohort Default Rates (CDRs).
- New Default Penalties: Colleges could face fees for graduates’ unpaid loans, creating a direct financial liability.
Impact: Increased costs for institutions.
- Title IV Eligibility at Risk: Skyrocketing delinquency rates (already 6.5x pre-pandemic) could push CDRs above the critical 40%, jeopardizing federal student aid eligibility.
Impact: Potential loss of crucial funding.
How to Support Your Federal Student Loan Borrowers
In this rapidly evolving and potentially challenging environment, colleges and universities cannot afford to remain passive. The time for proactive engagement and strategic partnerships is now. The pressure is on colleges to limit their Cohort Default Rates, and there’s no better solution than ION’s Default Aversion solution.