The 2025 House Budget: A Look at Tax Cuts, Defense Spending, and Deficit Reductions

The U.S. House of Representatives has recently passed its proposed budget for the fiscal year 2025, which will run through September 2025. This budget includes significant tax cuts, increased spending on border security and defense, and measures aimed at reducing the federal deficit, as reported by Roll Call. The budget reflects the priorities of the Republican majority in the House, with a focus on fiscal conservatism and national security. However, the passage of this budget is just the first step in a long legislative process. The House budget will now go to the Senate, where it will be debated, amended, and potentially negotiated with the House version to reach a final agreement. Until both chambers agree on a unified budget and it is signed into law by the president, the specifics of the final budget remain uncertain.

Student Loans and the Proposed Budget: A Potential Shift in Policy

One of the most contentious aspects of the House-proposed budget is its proposed changes to the federal student loan program. While the budget still needs to be reconciled with the Senate version, the initial proposal includes several significant reforms that could have far-reaching implications for students and families with student loan debt. A key aspect of the proposed budget is the restructuring of the student loan program, which some advocates argue could harm borrowers. Aissa Canchola Bañez, policy director for the Student Borrower Protection Center, has criticized the proposals, calling them an "attack on students and working families with student loan debt." The center warns that the Republican-led proposals could undo critical protections and programs for borrowers, making it more difficult for individuals to manage their debt.

One of the most notable changes in the proposed budget is the elimination of the Biden administration’s student loan forgiveness program. This program, which was introduced as part of the administration’s efforts to address the growing burden of student debt, has been a focal point of Republican opposition. The proposed budget would permanently end the program, which has been a lifeline for millions of borrowers. Additionally, the budget would block the implementation of the "Saving on Valuable Education" income-driven repayment (IDR) plan, which was designed to lower monthly payments for borrowers based on their income. This plan was already halted by the 8th U.S. Circuit Court of Appeals in response to a lawsuit filed by seven Republican-led states, as reported by The Hill.

The Impact of the Proposed Student Loan Changes

The proposed changes to the student loan program could have significant consequences for borrowers. Under the House plan, the IDR program would be replaced with a pair of new repayment plans. An analysis by The Institute for College Access & Success estimates that these changes could lead to higher monthly payments for many borrowers. For example, a borrower with a recent bachelor’s degree and an average income could see their monthly payments increase by $193, from $95 to $288. For borrowers with lower incomes, the impact could be even more severe. The analysis suggests that a borrower with an annual income of $30,000 would have less than $700 per month in discretionary income and would still be required to pay at least $54 per month. These changes could make it more difficult for borrowers to manage their debt, particularly for those with lower incomes or who are struggling financially.

The proposed elimination of the student loan forgiveness program and the restructuring of the IDR plan are part of a broader effort by Republicans to roll back key policies implemented by the Biden administration. These changes reflect a shift in the political landscape, with Republican lawmakers seeking to undo many of the initiatives introduced by the previous administration. The fate of these proposals will depend on the outcome of negotiations between the House and Senate, as well as the eventual signature of the president. Until a final budget is agreed upon, borrowers will remain in a state of uncertainty about the future of their student loans.

The Rising Cost of Higher Education: A Historical Perspective

To fully understand the implications of the proposed changes to the student loan program, it is important to consider the broader context of the rising cost of higher education in the United States. The modern cost of college can be traced back to the mid-1980s, when the relationship between productivity gains and worker compensation began to shift. Prior to this period, companies typically shared the benefits of productivity gains with their employees, resulting in median household incomes that kept pace with inflation. While this arrangement did not lead to significant wealth accumulation for most families, it helped maintain a standard of living that aligned with the cost of goods and services.

However, this dynamic changed in the latter half of the 20th century. Workers below the top third of the socioeconomic ladder were increasingly left behind as companies retained a larger share of productivity gains for themselves and their shareholders. This shift had a particularly pronounced impact on the cost of essential goods and services, such as housing, childcare, education, and healthcare. These costs began to rise at a faster rate than general inflation, creating a growing gap between the cost of living and the income of the average household.

The Gap Between Educational Costs and Median Incomes: A Growing Burden

The rising cost of higher education has been one of the most significant contributors to the growing financial burden on families. As the cost of college tuition and related expenses has outpaced inflation, many families have found it increasingly difficult to afford higher education without taking on significant debt. The graph below, based on data from the Federal Reserve Bank of St. Louis, illustrates the growing disparity between the cost of education and median household income. The solid blue line represents the consumer price index (CPI) for all urban consumers for education, while the dotted green line shows the median household income adjusted for inflation. The gap between these two lines has widened significantly over the past few decades, highlighting the growing challenge of affording higher education.

Older generations often express confusion about why younger generations struggle to pay for college, as they compare current tuition costs to those of the past. However, this perspective fails to account for the significant changes in the economy and the cost of living over the past several decades. For many families, the cost of college is simply out of reach without financial assistance, and even with financial aid, the burden of student loans has become a necessary reality. Students and their families are often forced to take on significant debt to bridge the gap between the cost of college and their available resources. This reliance on loans has become a central feature of the higher education system in the United States.

The Road Ahead: Negotiations, Uncertainty, and the Future of Higher Education

As the House and Senate work to negotiate a final budget, the future of the student loan program and the broader higher education system remains uncertain. The proposed changes to the student loan program, including the elimination of the forgiveness program and the restructuring of the IDR plan, could have a profound impact on millions of borrowers. However, these proposals are not yet set in stone, and the outcome of the negotiations will depend on a variety of factors, including the political dynamics in both chambers and the priorities of the Biden administration.

Until a final budget is agreed upon and signed into law, borrowers will likely remain in a state of uncertainty about the future of their student loans. This uncertainty could have broader implications for the economy, as the burden of student debt continues to weigh on individuals and families. The proposed changes to the student loan program are just one part of a larger conversation about the affordability of higher education and the role of the federal government in addressing this issue. As the debate over the budget continues, it is clear that the stakes are high for students, families, and the future of higher education in the United States.