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On April 29, the House Committee on Education and Workforce advanced a higher education proposal as part of the Republican party’s broader effort to pass a reconciliation package to implement President Trump’s domestic policy agenda. This piece examines how the proposed elimination of subsidized student loans would increase costs for low-income students.
The House Republican proposal would eliminate subsidized loans for low-income undergraduate students, significantly adding to their borrowing costs over time. In the 2023-24 academic year, 4.2 million students benefited from subsidized loans.
Subsidized loans are a targeted, need-based option that help low-income students reduce their college costs. They’re available to undergraduate students with high financial need and do not accrue interest while the student is enrolled in school (at least half-time), for the first six months after they leave school, and for up to three years of unemployment or other economic hardship (note: the House proposal would also eliminate the unemployment and hardship deferments).
Students from the lowest-income families continue to face an “affordability gap” between college costs and available aid, which leaves them little choice but to borrow. Consequently, eliminating subsidized loans would leave many low-income students with no option but to use unsubsidized loans, which, unlike subsidized loans, begin accruing interest immediately. As we show below, this would increase overall college costs for these students by tens of thousands of dollars.
Example Borrower Profile: Student A
Below, we illustrate how much more Student A would pay if Congress were to eliminate subsidized loans. Student A is a dependent student who has completed a bachelor’s degree in five years and repays their loan in full under the standard repayment plan. Under the current system, Student A would borrow $23,000 in subsidized loans and $8,000 in unsubsidized loans and would be in repayment for 10 years (current standard plan). Under the House Republican proposal, Student A would borrow $31,000 in unsubsidized loans and be in repayment for 15 years (new proposed standard plan).
If Congress were to eliminate subsidized loans, Student A would end up paying $12,422 more in total, a 29% increase over what they would’ve paid with access to subsidized loans.
| Balance at Graduation | Balance at End of Grace Period | Total Repaid | |
|---|---|---|---|
| Current: Subsidized Loans, 10-year Standard Repayment | $32,517 | $32,758 | $43,559 |
| Proposed: No Subsidized Loans, 15-year Standard Repayment | $36,003 | $36,924 | $55,981 |
The added costs to students would be even higher if interest rates were to increase. For example, if Congress were to eliminate subsidized loans and the undergraduate Direct Stafford loan interest rate were to hit the statutory cap of 8.25%, Student A would end up paying $24,633 more in total, a 57% increase over what they would’ve paid under the current system and interest rate.
| Balance at Graduation | Balance at End of Grace Period | Total Repaid | |
|---|---|---|---|
| Current: Subsidized Loans, 10-year Standard Repayment | $32,517 | $32,758 | $43,559 |
| Proposed: No Subsidized Loans, 15-year Standard Repayment, 8.25% Interest Rate | $37,772 | $39,051 | $68,192 |
We urge Congress to reject this proposal and instead ensure low-income students have more aid to cover college costs—not less.
Note: All facts and figures above are based on TICAS calculations using the maximum Direct Subsidized and Direct Unsubsidized Loan limits for dependent undergraduate students. Unless otherwise specified, we assume the current 2024-25 undergraduate interest rate for first-year borrowing. For subsequent years, we assume interest rates projected by the Congressional Budget Office in June 2024 (Table 5) for 2025-26 through 2029-30 for undergraduate student loans.
