College Cost Reduction Act Could Save $150 Billion, Lower Tuitions

UPDATE: On May 10, 2024, the Congressional Budget Office estimated the College Cost Reduction Act would save $185 billion over a decade, including $155 billion of direct savings (roughly matching our $150 billion estimate) and an additional $30 billion as place-holder savings from restricting future Administrative actions to cancel debt.

The House Committee on Education and the Workforce recently passed The College Cost Reduction Act, a bill designed to lower higher education costs and reform the student loan and Pell Grant programs. The legislation includes a number of policy reforms that would generally put downward pressure on tuition and reduce excessive borrowing of student debt. We estimate the bill would save at least $150 billion over a decade – mainly by replacing the Administration’s costly Income-Driven Repayment (IDR) expansion for new borrowers. Savings could be significantly higher after accounting for market and political risk, in part because the bill restricts future executive actions. 

The College Cost Reduction Act combines new policy reforms with a number of previously introduced partisan and bipartisan higher education proposals. Among the major changes, it would: 

• Improve transparency of college costs and value by creating a standardized financial aid offer form, updating the college Scorecard to show college costs and outcomes, adding degree comparisons, and implementing a universal net price calculator, among other changes.  
• Replace current income-driven repayment programs with a new Repayment Assistance Plan that would cap annual payments at 10 percent of annual disposable income, waive unpaid interest and ensure half of borrower’s monthly payments go towards principal, and forgive any remaining balance once a borrower has paid at least as much as they would under the standard ten-year repayment plan. 
• Cap federal student aid based on the median rather than the actual cost of attendance, calculated by degree program to encourage price competition among institutions. 
• Limit upfront lending costs and encourage loan rehabilitation by eliminating administrative origination fees, ending interest capitalization, and allowing borrowers in default to rehabilitate their loans twice instead of once. 
• Replace the Leveraging Education Assistance Program with new performed-based PROMISE grant program that would reward institutions with low tuition and strong earnings outcomes, conditional on these institutions providing a maximum total tuition price guarantee locked in for a reasonable period of enrollment.  
• Limit total per person federal loans by repealing unlimited PLUS loans and setting the maximum amount students can borrow at $50,000 for undergraduate students, $100,000 for graduate students, and $150,000 for professional degree seekers. The maximum total that could be borrowed would be capped at $200,000 per student in most cases. 
• Overhaul current institution accountability rules by repealing a number of existing regulations on higher education institutions, enacting significant accreditation reforms, and reauthorizing and reforming the National Advisory Committee on Institutional Quality and Integrity through the end of fiscal year 2028.  
• Introduce institution ‘risk sharing’ so that colleges and universities are responsible for a portion of unpaid student debt if students are unable to repay. 
• Limit executive authority to unilaterally cancel student debt by preventing the Secretary of Education from establishing any new repayment plans or modifying existing ones in a manner that would increase costs to the federal government and requiring any new regulations or executive actions to be budget neutral.  

Although we have not yet produced a complete analysis of the bill, we believe it would likely save at least $150 billion over a decade. Most significantly, this bill would repeal the most recent expansion of the IDR program for new loans. This repeal alone would save about $15 billion per year and thus explains this net savings. 

Other provisions would largely offset each other, from a fiscal perspective. For example, introducing the new Repayment Assistance Plan would modestly increase federal costs, while introducing risk sharing that would lead to modest savings. Calculating federal aid based on the median cost of college instead of the cost of attendance would likely lead to little net change in federal spending. And capping loans is likely to save money from Grad PLUS loans but lose money from Parent PLUS loans.  

Actual savings could be well above $150 billion when one accounts for market and political risk. For example, on a Fair Value basis which assigns a cost to the riskiness of loans, total federal loans are projected to cost about two-fifths more over a decade; this would suggest significantly higher savings from the College Cost Reduction Act.   

Perhaps the more significant risk comes from the potential cost of future executive actions – including a plan currently under consideration by the Biden Administration to dramatically expand its claimed debt-cancelling authority and a plan to add another hundreds of billions to the deficit. By preventing such plans from moving forward without offsets, the College Cost Reduction Act could potentially save tens or hundreds of billions of dollars more than our estimate. 

The legislation is also likely to meaningfully contain and reduce tuition costs for students. Improving transparency, increasing accountability, and limiting subsidies for high-cost institutions would all help to reduce costs by increasing competition among colleges and helping students identify the institution best for them. By making colleges financially responsible for loan losses, the College Cost Reduction Act would also give schools a more vested interest in improving outcomes for their attendees and graduates.

To be sure, the College Cost Reduction Act is just one approach to reducing college costs and lowering deficits. But it is a welcome contribution to a discussion that has recently focused on policies to increase college costs and widen the budget deficit. Lawmakers should seriously consider this and other higher education reform efforts to lower college costs and improve the value of higher education institutions.