GOP Megabill Could Put a Strain on College Affordability

Both the Senate and the House have proposed changes that higher education experts say could increase the cost of attending college. (Brandon Bell/Getty Images)

The tax and spending megabill that President Donald Trump describes as the “largest tax cut in American history” is also likely to make college less affordable for many.

Both the Senate and House versions of the bill include changes that higher education experts say would increase the cost of attending college. They make less money available for student grants, for example, and they narrow access to federal student loans.

Colleges and universities with large endowments are also facing higher tax bills and research funding cuts that could crimp their ability to offer financial aid.

“College is going to be more expensive if all of these changes go into effect,” said Phillip Levine, a professor of economics at Wellesley College in Massachusetts who has studied financial aid.

“These actions will wreak havoc on institutional budgets, leading to cuts in financial aid and programming that are not in our students’ best interests, let alone those of the nation,” he said.

The administration’s cuts to funding for National Institutes of Health and the National Science Foundation will eat into research institutions’ budgets, and public institutions will have to rely more on funding from state governments. The administration’s proposed higher taxes on school endowment returns means “they won’t have the resources to provide financial aid for students who need it,” Levine said.

Sen. Bill Cassidy (R, La.), chair of the Senate Health, Education, Labor, and Pensions Committee, says the Senate bill would save taxpayers at least $300 billion. “American higher education has lost its purpose. Students are graduating with degrees that won’t get them a job and insurmountable debt that they can’t pay back,” Cassidy said recently. “We need to fix our broken higher education system, so it prioritizes student success and ensures Americans have the skills to compete in a 21st century economy,” he said.

Rep. Bobby Scott (D, Va.), ranking Democrat on the House Committee on Education and the Workforce, told Barron’s that the House Republicans’ plan would increase costs for colleges and students, limit students’ access to quality programs, “and then take all the so-called ‘savings’ to pay for more tax cuts for the wealthy and the well-connected.”

Lawmakers are racing to send a completed, reconciled bill to the White House by Friday.

Reduced Access to Federal Loans

The GOP House plan cuts access to Pell Grants, which are a federal program that provides loan-free funding for undergraduates based on financial need. It reduces the maximum Federal Pell Grant award to $5,710 for the 2026-27 school year, from the current $7,395.

The Senate bill doesn’t reduce the maximum Pell Grant, but would prevent students on full scholarships from being eligible for them.

The House bill also excludes students taking fewer than 30 credit-hours a school year from being eligible for Pell Grants. That would affect students who work while attending school. The Senate bill keeps the current requirement of 24 credit hours a year.

Significantly reducing maximum Pell Grants for low-income students, while cutting or eliminating complementary programs, “reverses decades of commitment to the promise of the Higher Education Act” that pledged that no student should be denied a college education because of cost, said Melanie Storey, president and CEO of the nonpartisan National Association of Student Financial Aid Administrators in Washington, D.C.

Trump wants Congress to reduce government funding for federal work-study programs, which have long provided a way for students to work part-time for money to cover their education costs. The GOP proposal that Trump sought but the Senate didn’t include in its bill would lower the federal government’s contribution to that pay to 25% from 75%.

Both the House and Senate bills also lower the amount of money middle- and lower-income students can borrow in federal student loans, depending on the college program and the cost. In some cases, for example, students won’t be eligible for loans for college programs that don’t increase their expected earnings more than peers who graduated from high school. That could push borrowers to potentially more expensive private loan options, Scott said. And changes to repayment options don’t allow for deferrals for economic hardship or unemployment. They also no longer cancel loans when schools mislead students.

Current interest rates for federal direct student loans are 6.39% for undergraduate borrowers, and 7.94% for students in graduate or professional programs, plus loan fees of about 1%. Both interest rates and loan fees can be substantially higher for private sector loans.

“A single borrower making $45,000 a year will see their student loan payments just about triple,” Scott said.

Changes for Graduate School Borrowers

For graduate students, both the Senate and House bills would eliminate the Graduate PLUS loan program for graduate and professional school students, and limit the maximum amount families can borrow in Parent Plus Loans, effective July 1, 2026.

The current borrowing cap is the maximum cost of educating their child, minus any financial aid. The House bill requires students to take out their maximum annual loan amount before parents can borrow more, and proposes a limit of $50,000 for each parent borrower, regardless of how many dependent students they support.

The Senate’s bill doesn’t require students to have borrowed their maximum, but also proposes new Parent PLUS loan limits of $20,000 a year for each dependent student and a limit of $65,000 a dependent student.

The Senate bill also limits graduate loans to $20,500 annually for graduate students and $50,000 for students in a professional program, or a total of $100,000 for graduate students and $200,000 for professional students, according to the nonpartisan National Association of Student Financial Aid Administrators. The House capped graduate student loans at $100,000, or $150,000 for students in law or medical school.

Both the House bill and Senate proposal eliminate deferments for economic hardship or unemployment for borrowers. They also exclude the time spent in medical or dental internships or residency programs from counting toward Public Service Loan Forgiveness, which will force borrowers to wait longer for debt relief.

Higher Endowment Taxes

Both the Senate and House versions of the bill raise taxes on school endowments. The Senate version of the bill currently proposes a maximum tax rate on university endowment income of 8%, for example.

Currently, colleges with endowments of more than $500,000 a student pay a 1.4% rate. The House bill goes further than the Senate and establishes a tiered tax rate system of up to 21% based on an institution’s endowment relative to the size of their student body, minus their international students—new this year.

Under that formula, dozens of institutions with some of the largest endowments, including Harvard, Yale, Stanford, Princeton, and the Massachusetts Institute of Technology, would face significantly larger tax bills, ranging from $400 million to $850 million a year, Levine from Wellesley said.

Small liberal arts colleges such as Amherst, Pomona, and Swarthmore College were facing tax rates of up to 21%, because subtracting their international students “inflates” their adjusted endowments.

Swarthmore told the Philadelphia Inquirer that if its endowment tax balloons from $2 million to $30 million, it would likely have to scale back its no-loans financial aid packages for its 1,730-student school, calling the House formula “pretty devastating to small colleges.”

Levine said the current version of the bill would let smaller schools of fewer than 3,000 students off the hook, but still imposes substantive costs on larger schools, “so the potential harm is still there.”

Less Financial Aid for Noncitizens

The House and Senate budget bills also eliminate currently-eligible noncitizens, including certain refugees and asylum recipients, from eligibility for certain federal financial aid. The Senate’s legislation also excludes Ukrainians and Afghans who came to the U.S. on humanitarian grounds.

The Trump Justice Department recently succeeded in its lawsuit challenging the Texas Dream Act, a bipartisan measure passed in 2001 that allowed undocumented graduates of Texas high schools who met residency and academic requirements to pay in-state tuition rates at Texas public colleges and universities. U.S. District Judge Reed O’Connor of the Northern District of Texas agreed with the Trump administration that the law was unconstitutional and invalid, in a ruling that Texas Gov. Greg Abbott and Texas Attorney General Ken Paxton didn’t contest.

Texas was the first of 23 states to offer such benefits. The Justice Department has filed a similar lawsuit against Democratic Kentucky Gov. Andy Beshear and other officials for providing in-state tuition benefits to Kentucky high school graduates regardless of citizenship status.

Write to Janet H. Cho at janet.cho@dowjones.com