A new report from the Congressional Budget Office confirms that the One Big Beautiful Bill Act is set to reduce the amount of money taxpayers lose on federally subsidized student loans, reducing federal deficits by hundreds of billions over the next 10 years. There is still more Congress can do to lower higher education costs, but the OBBBA reforms are a good start to build upon.
The federal government’s direct loan program was first established in 1994, but it did not become the primary method of student borrowing until the Affordable Care Act, signed by former President Barack Obama in 2010. The Democratic Party cooked the books on the expanded direct loan program, claiming it would deliver $61 billion in deficit reduction over the expansion’s first 10 years. But these savings never materialized, as always seemed likely. Student loan payments routinely came in much lower than initially projected, as some students simply did not repay their loans and others took advantage of increasingly generous income-driven repayment programs.
President Joe Biden supercharged the direct loan program’s losses with his SAVE Plan, which further lowered required payments and prevented balances from growing, increased the amount of income shielded from payments to 225% of the poverty guideline, set payments as low as 5% of discretionary income for undergraduate borrowers, and covered unpaid monthly interest so low payments wouldn’t cause negative amortization. The cost of the direct loan program for taxpayers promptly skyrocketed.
Trump’s OBBA scrapped the old income-driven repayment programs entirely in favor of new Repayment Assistance Plans. RAP requires students to pay at least $10 a month, eliminating $0 payment plans. It pushes total debt forgiveness to 30 years instead of the old 20-year expiration. And it instituted a new formula based on the borrower’s adjusted gross income that had the effect of requiring larger payments from households earning over $100,000. The OBBA also instituted borrowing caps on parental and graduate loans, reducing federal loan spending by $10 billion a year.
Thanks to these changes, the federal government is set to lose 4 cents for every dollar loaned, which sounds bad, but is a lot better than the 18 cents it was losing on every dollar before the OBBBA.
Congress should go further by ensuring federal aid stops subsidizing failure. Program-level accountability could condition aid eligibility on outcomes — completion, earnings, and repayment — so chronically low-value programs either improve or lose access to federal dollars. Pair that with institutional risk-sharing, requiring colleges to absorb part of the cost when students drop out or can’t repay, and you change the incentive from “enroll everyone” to “deliver value efficiently.”
THE GOVERNMENT UNION THREAT TO GOOD GOVERNMENT IN VIRGINIA
Congress could make higher education more affordable by supporting competency-based education and three-year degrees, with clear federal rules that let students progress faster, transfer learning more easily, and finish at a lower total cost.
Taxpayers have wasted money subsidizing student loans that drive up the price tag of higher education, encourage administrative bloat, and support entire fields of study that have neither economic nor serious educational value and often actively undermine traditional U.S. values. Trump’s OBBBA is proving to be a winner for taxpayers and higher education reform.