House Republicans Consider New Taxes on Scholarships and Overhaul of Student Loan Programs: What It Means for You

As Congress looks to cut spending, some Republicans are suggesting new taxes on college scholarships, a halt to student loan repayment plans, and a significant increase in taxes on university endowments.

These ideas are part of broader discussions in House committees aiming to fund tax cuts from President Trump’s first term. While these proposals are still in the works, many in higher education are worried about their potential impact.

Jessica Thompson, a policy expert at The Institute for College Access and Success, expressed concern, stating that the proposed cuts feel more ideological than necessary, especially as they aren’t being made in response to a budget crisis.

Let’s break down some of these proposed changes affecting higher education:

Changes to Student Loan Programs

The House Education Committee is looking into various ways to change student loan programs. One suggestion is to limit students’ access to federal aid.

Among the plans at risk is the SAVE plan, which the Biden administration introduced. This plan allows borrowers making less than 225% of the federal poverty line—about $32,800 for a single person—to skip payments without accruing interest. Republicans have already challenged this plan, putting it on hold.

Another proposal might help borrowers recover from defaults. Right now, borrowers can only rehabilitate their loans once. The new plan could allow this process twice, helping many get back on track.

Taxing Scholarships

Currently, scholarships and fellowships are tax-exempt if used for tuition. However, one proposed change could remove this exemption, potentially increasing costs for students and families.

According to Craig Lindwarm, a senior vice president with the Association of Public and Land-Grant Universities, many of these proposals would create financial strains instead of helping reduce education costs.

Higher Taxes on College Endowments

Currently, some private colleges pay a 1.4% tax on their endowment income. There’s a suggestion to increase this to 14% and expand the number of colleges affected.

Additionally, fines may be imposed on colleges that violate student rights under Title VI, which protects against discrimination. Investigations often require changes in training and policies.

With these proposals floating through Congress, it’s uncertain when or if they will be acted upon. They could surface in discussions as soon as this spring, but passing them might prove challenging in a closely divided House.