House Republicans are proposing to eliminate interest subsidies on undergraduate federal student loans in a new funding bill released on Thursday. The change, if enacted, could make borrowing and student loan repayment even more expensive. And they come on the heels of other recent student loan reforms made by GOP lawmakers and the Trump administration that critics have warned will make paying for college increasingly unaffordable.
The proposed legislation, if enacted, would terminate federal subsidized student loans for undergraduate borrowers starting in 2027. That would leave only unsubsidized federal student loans, which accrue interest immediately upon disbursement and would cause students to owe more than what they originally borrowed upon graduation.
“Our purpose here is to prioritize resources to the greatest needs of our nation,” said Labor, Health and Human Services, Education, and Related Agencies Subcommittee Chairman Robert Aderholt (R-AL) in a statement on Thursday following the release of the bill. “This bill balances the need for responsible fiscal stewardship, while maintaining key investments in biomedical research, America’s schools, and core public health.”
Here’s what the change could mean for federal student loans and the costs of repayment.
Elimination Of Student Loan Interest Benefit Could Be Costly For Borrowers
Subsidized federal student loans allow borrowers to finance their undergraduate degree program while avoiding any financial penalty for being unable to make payments on those loans while they are enrolled in school. The federal government waives interest accrual during the in-school period and during the post-graduation six-month grace period, before payments become due. But the proposed legislation released by House Republicans this week would eliminate undergraduate subsidized federal student loans.
“TERMINATION OF AUTHORITY TO MAKE SUBSIDIZED LOANS TO UNDERGRADUATE STUDENTS,” reads the legislative text. “Subject to paragraph (8) and notwithstanding any provision of this part or part B, for any period of instruction beginning on or after July 1, 2027— ‘‘(i) an undergraduate student shall not be eligible to receive a Federal Direct Stafford loan under this part.”
The termination of the federal student loan interest subsidy would mean that borrowers would owe more on their student loans once they graduate or withdraw from their program than what they originally borrowed. That, in turn, would increase the repayment burden associated with those loans.
Under current rules governing federal student loan limits, an undergraduate student could take on up to $19,000 in federal subsidized student loans during the first four years of their undergraduate degree program. The subsidy means that upon graduating and completing their grace period, the student would still owe only the original $19,000 that they borrowed. On a 10-year Standard repayment plan, assuming an average interest rate of around 6%, their monthly payments would be around $210 per month.
But without the interest subsidy, that same borrower could wind up owing more than $22,000 after graduating and completing their grace period. On the same 10-year Standard repayment plan, they would have to make payments closer to around $250 per month. That may seem like a negligible difference, but over the course of a 10-year repayment term, that would cost the borrower an additional $4,800 in student loan payments.
Critics Argue Reforms Will Compound Additional Repayment Cost For Student Loan Borrowers
Student loan borrower advocacy organizations slammed the GOP proposal. Noting that the legislation would also slash Department of Education funding for other programs, such as the federal work-study and the Federal Supplemental Educational Opportunity Grant programs, even while it slightly enhances funding for federal Pell Grants, advocates argued that the net effect would be to saddle students and borrowers with additional costs.
“While we support appropriators’ proposed investments in the Pell Grant program, the bill’s other provisions would increase costs and debt burdens for low-income students,” said Michele Zampini, Associate Vice President of Federal Policy & Advocacy at The Institute For College Access and Success in a statement on Thursday. “Eliminating subsidized loans, which go to undergraduate students with high financial need, could increase overall college costs for these students by thousands of dollars. Cutting funding for the Federal Supplemental Educational Opportunity Grant (FSEOG) and Federal Work-Study (FWS) programs would make it harder for millions of students to afford college and complete a degree.”
“While we acknowledge the need to address the looming Pell shortfall, it is simply inexcusable that policymakers are doing so on the backs of low-income students who are already struggling to pay for college,” said Protect Borrowers Policy Director Aissa Canchola Bañez in a statement on Thursday. “This proposal will leave even more students saddled with thousands of dollars in additional debt in the midst of a growing affordability crisis.”
Upcoming Changes Will Impact Student Loan Repayment And Borrowing
The latest proposal was released this week as the Education Department prepares to implement significant changes to federal student loan programs in the coming weeks. Many of the changes are mandated under the One Big, Beautiful Bill Act, which President Trump signed into law last year after passage by congressional Republicans.
The bill imposes new limits on federal student loan borrowing, particularly for graduate and professional students, and narrows the borrowing and repayment options for Parent PLUS borrowers. The legislation also eliminates some of the more affordable income-driven repayment plan options available for borrowers, including Pay As You Earn and SAVE (which will be phased out this summer after the Trump administration agreed to rescind the SAVE plan regulations in response to a legal challenge brought by Republican-led states).
“Not even a year has gone by since Congressional Republicans rammed the ‘One Big Beautiful Bill’ across the finish line, decimating the federal student loan safety net and making it more expensive and risky for students and families to pay for college,” said Bañez. “Now, it appears that House Republican appropriators are coming back to finish the job—this time eliminating subsidized loans for undergraduate students in need.”
The Education Department is planning on sending notices to millions of borrowers in the SAVE plan this July that they will need to switch to a different repayment plan, which in many cases will result in higher monthly payments. The department is also moving forward with proposed new regulations that would allow the government to disqualify employers from participating in the Public Service Loan Forgiveness program, or PSLF, which offers borrowers working in nonprofit or government jobs student loan forgiveness in as little as 10 years. Those regulations are currently facing several legal challenges.
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