One of the best tools available to improve higher education policy has a potential expiration date. In particular, reconciliation bills can bypass the Senate filibuster but are generally restricted to budgetary matters such as spending and taxation. This allows for limited reform when one party controls the House, the Senate, and the Presidency. If Republicans lose the House and/or Senate in the upcoming elections, there will be little potential for future reconciliation bills for the next few years, so Republicans should make this next one count.

Last year’s reconciliation bill made a host of changes to higher education policy that generated $320 billion in savings. While some of the best reforms were implemented in that bill, there is still a lot of low-hanging fruit that would improve higher education policy while simultaneously saving taxpayers money. These opportunities are spread across student loans, campus-based aid programs, tax benefits, and research overhead. More details are available in a recently released briefing paper, but a short summary of key possibilities follows.

Student Loans

Two big reforms to student loans would generate substantial savings. The first is to eliminate subsidized student loans. This type of loan waives interest while the student is still enrolled. This perk does little to influence student enrollment decisions, but costs taxpayers quite a lot. Eliminating these loans wouldn’t affect how much students could borrow, as “unsubsidized” loan eligibility increases one-for-one with decreases in “subsidized” loan eligibility—and would save taxpayers just over $14 billion over the next 10 years.

A second reform would be to eliminate or cap Public Service Loan Forgiveness (PSLF). PSLF provides government and non-profit workers with accelerated loan forgiveness, in as few as 10 years, compared to 30 years under the new Repayment Assistance Plan (RAP). This results in massive windfalls for some workers. For instance, the average amount of debt forgiven under PSLF is $97,982, which is equivalent to sending lots of government workers six-figure bonus checks. Eliminating PSLF would be ideal, but at the very least, the amount of debt forgiven should be capped.

Campus-Based Aid Programs

The Federal Supplemental Educational Opportunity Grant Program (FSEOG) and work-study are referred to as campus-based aid programs because, while the federal government provides most of the funding, individual colleges determine who gets the aid. In addition to letting non-governmental institutions determine how taxpayer money is spent, the funding for the program is distributed disproportionately to aristocratic colleges. For example, the report notes that

for 2023–2024, New York University had the seventh-highest FSEOG funding among all universities, yet it ranked 239 in the number of high-need students enrolled (as measured by Pell Grant recipients). In particular, the university had 5,677 Pell Grant recipients and received $4.2 million in FSEOG funding. In contrast, Suffolk County Community College had almost the same number of Pell Grant recipients (5,566), yet it received less than $800,000 of FSEOG funding.

Eliminating the campus-based aid programs or reducing the federal share—typically around 75 percent—would save taxpayers more than $20 billion over the next 10 years.

Higher Education Tax Credits and Deductions

The tax code is littered with expensive but ineffective tax credits and deductions for higher education. These tax benefits have very little effect on student enrollment decisions, with one analysis finding that 93 percent of recipients would have attended college even without the tax benefit. Tax benefits also lead colleges to raise prices, so they don’t improve college affordability either.

Eliminating tax benefits would save taxpayers a bundle. For instance, eliminating the American Opportunity Tax Credit and the Lifetime Learning Credit could save $132 billion over 10 years. Taxing scholarship and fellowship as income would raise $56 billion, and eliminating the deduction for student loan interest would raise another $26 billion.

Benchmark Overhead Reimbursement for Federally Funded Research

Overhead rates for federally funded research, the amount paid to colleges to cover administrative and facilities costs, have gotten out of control. Many colleges are getting more than 50 percent in overhead, which encourages wasteful administrative spending and diverts funding from research to administration. The problem is that some overhead is legitimate, but it is very difficult for policymakers to determine the appropriate rate. One promising solution would set a universal benchmark rate using a sample of university overhead spending. This would save colleges and the government from negotiating separate rates for every university, and would also encourage schools to eliminate unnecessary overhead costs, which over time would be incorporated into new overhead rates that save taxpayers money.

In sum, a host of reforms could generate $265 billion in savings and revenue over the next decade while simultaneously improving higher education policy.

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