The End of the Free College Lunch

I'm reminded of Will Hunting who wisely decided not to pay for a Harvard Education.

The End of the Free College Lunch

The GOP begins to rein in student loans and forgiveness plans.

By The Editorial Board, WSJ

May 2, 2025 6:21 pm ET

The press corps isn’t telling you, but the major action in Washington is now shifting to Congress as Republicans move ahead with the planks of their reconciliation bill. There’s much good policy news, including at last some serious reform of student loans.

College enrollment has been declining as more parents and students question the value of degrees that can cost as much as a starter home. And for good reason. Colleges keep raising tuition and adding graduate programs to rake in more federal subsidies with little consideration for student outcomes.

A report last week by the Bureau of Labor Statistics found the unemployment rate for recent associate degree (e.g., community college and vocational school) recipients in their 20s was 2.1% compared to 15.3% for four-year college grads and 8.4% for advanced degree recipients. Mull that one over: You have a higher chance of being unemployed these days if you go to college.

Student loans have also become one of the great policy failures of the age. Even before the pandemic, fewer than half of borrowers were paying down their debt. The federal student loan balance sheet has ballooned to $1.7 trillion, double what it was 15 years ago when Democrats used ObamaCare to nationalize the industry. Student debt would now exceed $2 trillion without the Biden loan forgiveness.

Enter House Republicans, who this week advanced a slate of reforms in the Education and Workforce Committee that they plan to attach to reconciliation. The goal is to hold colleges accountable for student outcomes and curb the open-ended loan buffet.

The House would reduce the aggregate limit for undergraduate loans to $50,000 from $57,500. The bill would also impose a $100,000 borrowing limit for master’s degree and doctoral programs and $150,000 for professional programs like law degrees. Graduate student loans are currently uncapped.

This will reduce the incentive for colleges to raise tuition and add graduate programs, which often cost six figures. The legislation also limits student borrowing to the “median cost of college” for programs nationwide, which will effectively compel high-priced institutions to lower tuition or provide more financial aid.

The legislation also ends the much-abused loan-repayment reprieves for students who claim economic hardship or unemployment. The ObamaCare income-based repayment plans, which capped payments at 10% of a borrower’s discretionary income and forgave remaining balances after 20 years, would be phased out for new borrowers.

These plans would be replaced by a new “repayment assistance plan,” with monthly payments ranging from 1% to 10% of adjusted gross income over 30 years. The idea is to help grads who struggle to find their footing by letting them make smaller monthly payments for a longer duration than on a 10-year standard plan.

Congress would do better to eliminate all income-based repayment plans and the special loan forgiveness program for government and nonprofit workers. But at least the bill would require colleges to pay a share of the debt that borrowers don’t repay. If a grad repays only a quarter of the debt he owes, the college would be on the hook for a share of the other 75%. This would give colleges an incentive to eliminate or improve programs from which grads earn too little to repay the loans.

Another plus: The bill would repeal the Obama-Biden gainful employment, borrower defense and 90/10 rules that punish for-profit colleges based on arbitrary measures. Some for-profits have lousy student outcomes, but so do many public and nonprofit schools. The bill would hold all institutions equally accountable if students don’t repay their loans.

It would also reduce the government favoritism for traditional college degrees by letting borrowers use Pell grants for workforce training, provided that the programs meet specified job placement rates and earnings measures. This would promote innovative and more efficient vocational training in fields like managing data center equipment.

The GOP bill isn’t a panacea for all of the rot in higher education, but it addresses some of the distorted government incentives that encourage universities to expand programs with little educational value and burden students with ever more debt.