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On July 4, President Trump signed into law a massive legislative package that makes major changes to federal higher education policy. This piece examines how the law delays longstanding student loan borrower protections and creates new accountability metrics for postsecondary institutions.
Delayed Implementation of Stronger Student Protections
The final reconciliation bill delays the implementation of the Biden Administration’s Borrower Defense and Closed School Discharge rules until July 1, 2035, meaning the rules do not apply to loans made before that date. The Biden Administration’s revised borrower defense and closed school discharge rules sought to streamline the relief process and allow eligible borrowers to once again receive automatic discharges. During this ten-year delay, the borrower defense and closed school discharge processes revert to the rules created under the first Trump Administration that made it nearly impossible for defrauded borrowers to receive relief and limits discharges for borrowers whose school closes during their attendance.
Borrower defense to repayment allows students who enrolled at a school based upon a material misrepresentation to apply for student loan discharge. Closed school discharge allows borrowers to seek student loan discharge when their school closes while they attend or recently after they withdrew, leaving them unable to finish their credential. These programs offer relief for borrowers burdened by loans because of circumstances beyond their control, including school misconduct and abrupt closure.
Under regulations finalized during the first Trump administration, borrower defense discharge became nearly impossible to access because of overly stringent burdens of proof placed on borrowers. These rules instituted claim review protocols designed to disregard evidence of misconduct, ensuring over 95 percent of borrower claims would be denied, and introduced a draconian formula to reduce the amount of loan cancellation for those few successful claims. The regulations faced bipartisan opposition in the House and Senate. And even before that rule went into effect, the first Trump Administration’s failure to adjudicate a massive backlog of borrower defense applications spawned a class-action lawsuit involving over 200,000 borrowers, some of whom are still waiting for relief.
The first Trump Administration also eliminated borrowers’ right to automatic closed school discharge initially established under the Obama Administration. Rather than requiring each borrower to apply for discharge individually, the automatic process allowed the Secretary of Education to discharge qualifying loans for all eligible borrowers and resulted in more borrowers receiving the relief to which they were entitled.
New Institutional Accountability Measures
The law creates a new metric designed to ensure colleges provide degree programs that boost their graduates’ earnings. Effective July 1, 2026, all Title IV undergraduate and graduate programs must show that most completers earn more than working adults who did not attend college, or the programs risk losing eligibility for federal loans.
For undergraduate degree programs: the median earnings of completers who are working and not currently enrolled in further education must exceed—for two out of three consecutive years—the median earnings of 25–34 –year-olds in the state who only have a high school diploma or recognized equivalent.
For graduate degree programs: the median earnings of completers who are working and not currently enrolled in further education must exceed—for two out of three consecutive years—the median earnings of working bachelor’s degree holders in the state, aged 25–34, who are not currently enrolled in further education.
Schools that fail to meet the earnings benchmark for one year in a three-year period must inform students that the program is at risk of losing access to loans. Failure to meet the earnings benchmark for two years in a three-year period will cause a program to lose access to federal loans but will not affect access to Pell Grants. The Secretary of Education must also establish processes by which at-risk schools can appeal against the revocation of their loan eligibility and schools that have lost eligibility for at least two years can reapply to regain eligibility.
Implementing the new earnings metric by July 1, 2026, will likely present a complex set of challenges for the Department of Education (ED). ED must create a program-level data collection process and ensure institutional compliance with the law’s requirements, but these mandates may be challenging to carry out following sweeping staff layoffs. Additionally, the new earnings test does not apply to certificate programs and creates inconsistent accountability standards for different credential levels. Policymakers and advocates should track the implementation process closely and remain attentive to the impacts of earnings requirements, particularly on programs leading to jobs in needed but persistently low-paying fields.
Key Differences Between House Reconciliation Bill and Final Act
Notably, the final legislation diverges from an earlier version of the bill passed by the House of Representatives that would have slashed student protections even more drastically. The House bill would have repealed the requirement that for-profit colleges derive at least 10 percent of their revenue from non-federal sources. Known as the 90/10 rule, this requirement prevents predatory colleges from targeting student veterans for their GI Bill benefits and has historically received bipartisan support, including as recently as the 2021 closure of a loophole that incentivized for-profit colleges to recruit veterans aggressively.
The House legislation also would have repealed quality standards designed to ensure career education programs leave students with increased earnings and manageable debt. The gainful employment (GE) rule requires that graduates of qualifying programs do not have unaffordable student loan debt (i.e., the debt of the median completer cannot exceed eight percent of annual income or 20 percent of discretionary income) and that graduates’ earnings exceed those of people employed in their fields who have not pursued postsecondary training.
Both the 90/10 and GE rules set baseline standards to ensure students are not harmed by low-quality for-profit programs. The nonpartisan Congressional Budget Office estimated that repealing these rules would have cost taxpayers over $11 billion dollars.
Conclusion
While we are encouraged that the final bill reversed course on repealing these front-end safeguards for students and taxpayers, we remain concerned by the delayed implementation of borrower defense and closed school discharge rules that offer necessary relief for defrauded borrowers. The recent Supreme Court decision permitting mass layoffs at the Department of Education also raises serious questions about the Department’s ability to implement the bill’s new institutional accountability metric successfully. Collectively, these legislative and Departmental changes will leave borrowers less protected from predatory, low-quality schools.
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