Beauty and the Beast

The big beautiful spending bill has some ugly sides

Beauty and the Beast

The Trump administration’s big beautiful spending bill reaches the Senate. It’s common consensus that the bill would increase the deficit. It has far reaching implications for everything, and education definitely isn’t untouched.

The End of Repayment Plans

Currently, student loan borrowers have a few options for repayment plans:

• Standard repayment plan (a fixed payment for 10 to 30 years)

• Graduated repayment plan (payments gradually increase every two years)

• Extended repayment plan

• Income-Based Repayment (IBR) Plan

• Income-Contingent Repayment (ICR) Plan

• Pay As You Earn (PAYE) Repayment Plan

• Saving on a Valuable Education (SAVE) Plan

The bill passed by the House would cap federal loans based on a formula based on the median cost of similar programs (not the specific cost of the program). Federal loans would be capped at $50K total for undergraduate degrees, $100K for graduate degrees, and $150K for professional degrees (down from $57.5K, $138K, and $224K respectively).

This is an interesting approach for its intended goal, which is to limit the cost of a higher education degree by suppressing federal funding for expensive programs.

Source: Education Data Initiative

While somewhat idealistic, the Student Borrower Protection Center warns that the only thing this funding formula would do would be to push student borrowers into the private market (which currently account for about 10% of total loans).

We’ve mentioned this before, but a huge winner in this administration are for-profits, like Adtalem. Naveant stock is up 9% over the past month, outpacing the S&P 500’s 5%.

It might also exacerbate our medical degree shortage by making those degrees more expensive.

The bill would also abolish most repayment plans and give borrowers (including all current borrowers) only two options: The standard repayment plan or a new, income based repayment plan. The end of the SAVE plan, in particular, is expected to drive up repayment costs by nearly $3K.

One of the weirdest dimensions of the bill is how it negatively impacts Pell Grants.

25% of Pell Grant recipients would see a $1,500 drop in their award.

It would prohibit part time students from qualifying if they’re enrolled for less than half the time.

Over 61 percent of Pell Grant recipients (over 4 million low-income borrowers) could see their award reduced or eliminated. This is because the bill: (1) requires students to be enrolled in 30 credits per year, up from 24 credits, to receive the maximum Pell award; (2) eliminates eligibility entirely for students enrolled less than “half-time”; and (3) eliminates Pell Grant eligibility for students whose Student Aid Index is twice the maximum Pell award (which includes many lower-middle-class to middle-class families who struggle to afford college due to having multiple children).

- Jennifer Zhang, Student Borrower Protection Center Deep Dive

As a society, don’t we want to support students who are working and attending school in their spare time?

On another note…

US District Judge Myong Joun has blocked the Trump administration’s firing of thousands of Department of Education employees. He rejected the argument that these employees were fired in the name of efficiency.

“The record abundantly reveals that Defendants’ true intention is to effectively dismantle the Department without an authorizing statute.”

Joun cited that, in the wake of the firings, the department has become less efficient.

Meanwhile, the workforce as we know it is ending. We’ll talk more about this in our next post, but entry-level hiring at big tech is down 50% over the past 3 years alone. AI developers are warning that we could see 10–20% unemployment rates as AI eviscerates the bottom rungs of our workforce.