Student loan reform bill would improve colleges’ return on investment

Postsecondary education remains a key pathway for upward mobility for Americans, particularly those on the bottom half of the socioeconomic ladder. However, the current economics of higher education are often a mixed bag for American students, since many colleges and universities don’t offer education and training that provide enough value for students to offset the grants,loans, and lost potential wages often required to attend. This problem is exacerbated by the federal government’s current approach to subsidizing higher education. 

FREOPP’s groundbreaking return-on-investment (ROI) index provides transparency about the economic value of postsecondary education based on projected lifetime earnings. In September 2024, FREOPP issued a series of recommendations for the White House and Congress to reform federal higher education policies and student loans to reduce costs, improve transparency, and hold colleges and universities accountable to improve value. 

The House Education and Workforce Committee recently approved the Student Success and Taxpayer Savings Plans as part of the House’s budget reconciliation. The plan aligns well with FREOPP’s recommendations. 

Committee Chairman Tim Walberg (R., Mich.) celebrated the bill: 

“The bill passed by committee Republicans today not only would save taxpayers over $350 billion but also bring much-needed reform in three key areas: simplified loan repayment, streamlined student loan options, and accountability for students and taxpayers. I’m proud of the committee’s work today to finally stand up and end the status quo of endless borrowing.”

The legislation achieves more than $350 billion in savings, according to the Congressional Budget Office, largely by reforming current programs for supporting loan repayments and by capping the amount of loans available to undergraduate students . On repayments, the legislation would end the Biden administration’s student loan payment initiative which was projected to cost taxpayers $220 billion, and establish new, consolidated repayments options. 

Wisely, the bill would begin to hold colleges and universities accountable for the value that they provide to students. According to the committee’s fact sheet, the legislation “Creates ‘skin-in-the-game’ accountability for colleges and universities by amending the terms of the Direct Loan program participation agreement to require institutions to reimburse the Secretary [of Education] for a percentage of the non-repayment balance associated with loans disbursed on or after July 1, 2027”

Preston Cooper, a senior fellow with the American Enterprise Institute who previously led FREOPP’s work on higher education, summarized the bill’s potential: 

“The House proposal is a three-front attack on the student loan monster. Loan limits aim to ensure debt levels are reasonable. The new repayment plan will prevent rising balances. Accountability for colleges will ensure the debts they compel students to take on are justified based on outcomes. If passed, the result of this policy mix will be a saner and more sustainable student loan system.”

The outlook of these reforms is uncertain. In the reconciliation process to address the looming expiration of the 2017 tax law,  the House will need to negotiate with the Senate on other spending reductions. For the time being, House Republicans should be applauded for addressing the broken incentives and economics of higher education subsidies and trying to promote better value for American students.