Student loan programs: another Trump era casualty

There will be unintended consequences to this, and they may not be bad ones

One more apparent calamity of the “One Big, Beautiful Bill” has been drastic changes to student loan programs. New borrowing limits, fewer repayment options, and an end to forgiveness via public service programs for starters.¹

Knowing this administration, the intent from their end is pretty straightforward: prevent poor and lower middle class people from accessing top-flight private universities. Acknowledging the link between race and poverty that persists in America, and taking these changes in combined with the administration’s hostility toward DEI, it is nearly impossible to escape the conclusion that there is no small amount of racism at play here as well.

Student loans, like mortgages, where supposed to give the middle class a leg up

The federal student loan programs were created to help broaden access to higher education. In theory the idea is sound. Just as mortgages helped home buyers who could afford to pay for a home over time but did not have the resources to purchase one outright for cash, student loans allowed people access to higher education they could not afford otherwise.

Both programs have the potential to offer permanent elevation of the middle class. Someone trying to save for a home while simultaneously paying rent for an apartment - rather than paying off the mortgage while living in the purchased house - might find it impossible to simultaneously save enough money to buy a home for cash.

Likewise, student loans allow one to purchase an education up front that should offer substantially improved earning potential from graduation onward, compared to working a retail job while saving for college or going to night school. Moreover, even if one could save up enough money to go to college, there would be many years of lost potential income no one could ever fully reclaim during the years one waited to enroll.

The early focus on expanding opportunity while managing feasibility

In the early days of mortgages, one worked hard to qualify for a mortgage, and banks were interested in proof of reliable employment and income to show that the loan would be repaid. The American dream of the time was focused more on moving from renting to ownership than a constant upward trading game of ever more expensive houses.

Similarly, student loans started out with relatively tight limits. This might have limited options - as students could not borrow enough to attend Yale or Princeton on their own - but they could still improve their educational prospects.

What both early mortgages and early student loans shared was a focus on the ability of the borrower to pay the loan back. While this improved opportunity, the focus was more on moving people upward than giving them access to the highest echelons of education.

Unintended Consequences I: The notion of equality leads to predatory mortgage lending

In the realm of credit, and particularly mortgages, the notion of equality led to a push for expanded borrowing opportunities, providing what was hoped to be more and more upward mobility for the middle class.

But as happens with all predators, exploiters, and cartoon villains - the changing landscape presented an opportunity for them as well. And that opportunity came in the form of predatory lending.

In mortgages, a number of shifts occurred in lending that ultimately resorted in a predatory pattern. While the initial push for expanding eligibility led to loosening of mortgage requirements, this also increased the number of mortgage defaults, as people were increasingly able to take out loans that they had less ability to repay - or less cushion in the event of a financial downturn.

Mortgages transformed from a stodgy, secure sort of investment to a more speculative model. Adjustable rate mortgages (and balloon mortgages) lured people in with low initial payments and interest rates, but became predatory if the predications upon which they were built could not be satisfied. The result? The middle class ended up worse off instead of better.

Unintended Consequences II: The notion of equality leads to predatory student loan lending

Over the past several decades, student loan lending has gradually become increasingly predatory - but for different reasons, and due to different pressures.

In the 1980’s college tuitions began to rise, and the government was slow to respond. The Reagan administration largely shrugged and said “oh, well. Maybe people won’t be able to afford to go to college.” This enraged a lot of people - and upset our moral sensibilities about expanding equality of opportunity.

In contrast, the Clinton administration worked in multiple ways to improve access and opportunity - higher student loan limits, AmericaCorps, and other loan forgiveness programs. And indeed these policies presented opportunity (and benefit) to many Americans.

The greatest unintended consequence of the collision between the notion of increasing equality and increasing student loan borrowing limits was a positive feedback loop that has dramatically increased the price of college tuition itself.

As tuition increased, putting top-flight schools out of the reach of ordinary borrowers, historically schools like MIT would make up the difference out of their own educational funds in the belief that intellect and potential, rather than an accident of birth, should determine whether or not someone could receive a diploma from their institution.

But universities have long struggled with funding. Delivering a quality education is an expensive and often financially losing proposition. It requires excellent faculty, top-notch facilities, and access to a tremendous array of resources. Even the most well-endowed and best-intentioned universities cannot completely ignore financial pressures.

Increasing student loan limits originally seemed like the answer they had been seeking. The university could offer more admission to gifted students, but not suffer as severe economic consequences, as the universities would have to make up less of the difference between what the student could pay (or borrow) and the cost of tuition.

But in the long term this came at a price. The constant tug between universities needing funding and students wanting access to education has been met largely by increasing borrowing limits to the point that many people have had little or no hope of paying their loans back.

The end result is enslavement rather than opportunity. Even students who choose lucrative careers like medicine or law find themselves hemmed in by the yoke of their loans, and even if they are depressed or burned out or just find themselves ill-suited to the healthcare or legal professions, they have very little hope of changing careers.

For those who might pursue more personally but less financially rewarding careers in the arts or the public sector, the problem is worse. They leave school with comparable amounts of debt, but no realistic prospects for repayment aside from living as frugally as they did as college students for decades and/or taking second or third jobs to make ends meet.

In part because students before them had high default rates, it is nearly impossible now to get a student loan debt discharged. Even bankruptcy will not release the debtor. We may no longer have debtor’s prisons, but the shackles of wage garnishment are nonetheless real.

While universities may not have set out to prey upon their students, that has been the net result. The universities have found a means of accessing nearly unlimited amounts of unrestricted federal “grant” money - by making students the guarantors of increasingly predatory loans.

Unintended Consequences III: The break of the predatory lending strangle hold

In the short term, the “One big, beautiful bill” does not help anyone who has graduated, as their repayment options will be starkly limited in the future. It does nothing to relieve the burden of the tremendous debt they have already accrued, nor does it offer any better hope of paying it back.

For those applying to college, at first blush it seems to limit their opportunity. As with most other aspects of Trump administration policy, the well-heeled will barely notice - but the middle class and the poor will bear the brunt of the new restrictions.

It may seem in the beginning that the universities will go unhindered. After all, the pool of applicants is deep, and there might still be enough money that they can ignore their role in the development of predatory student loan lending and proceed unfettered - at least for a time.

But as with all initial intoxication, the picture changes as the sugar high from the OBBB fades, we crash, and the hangover develops.

Unintended Consequences and hope for the future

Complex systems like mortgage and educational lending respond to many inputs, only one of which is the whim of the current administration. The majority of people in the US still value equality of opportunity - because it benefits them to to do. And there are far more people who have benefited from mortgage and educational lending than who have been able to pay their own way.

In the near-term future, the trends that drove increased borrowing limits will reverse themselves, and the applicant pool for the most elite institutions will be driven more by financial than intellectual concerns. This is the intended consequence of destroying DEI and educational borrowing programs.

But the first unintended consequence for universities will be a decrease in the quality of the applicant pool. The brightest and the best are not necessarily the most financially well off. Those minds instead will end up at what are often unjustly viewed as “lesser” institutions. But this diffusion of academic and intellectual talent may well benefit society, as people create opportunity outside of the formerly elite corridors.

Perhaps one of the best opportunities this shifting financial landscape presents is an opportunity for revitalization of state and public universities. Those colleges have long benefited society by offering comparatively affordable tuition. Now, the cachet of attending an Ivy has now been offset by such elite institutions being financially out of reach once again.

Why elite universities will suffer in the longer term

Much more drives an academic institution than funding. Reputation rests not only upon tradition, but more so upon the products of their educational pursuit - cutting-edge research and graduates that make a mark upon the world.

The elite institutions that fail to adapt will befall the fate that always comes to sclerotic, plutocratic establishments. Because of the extent that financial necessity will force them to reward connections rather than competence, and because financial (and thereby racial) concerns will then override true merit, the reputations of these universities will fade as their accomplishments do. The brightest and the best and the most academically gifted will be elsewhere, and the loyalty of those individuals will be to the institutions that gave them their academic opportunity rather than some stuffy, letter sweater, banner waving haven for rich scions of terminally average intelligence.

Ivy League institutions like Harvard and Princeton and Yale will find other ways to fund the best and the brightest to bring them to their universities - or they will become the new country clubs of the idle rich. They will be the academic equivalent of Mar-a-Lago.

The financial oligarchy that is attempting to take over our universities is part of the same wealthy elite that is choking off clean energy initiatives and working diligently to repeal environmental regulations. As they pursue wealth and exclusion, they will ultimately become irrelevant. Innovation will not ultimately be stopped - it will just shift to other locales.

There is much reason to be hopeful for more quality, affordable education

The Ivies have long provided excellent educations - but so have the universities of the next tier, which are often far more affordable. California, New York, and even Texas have shown historically that high quality state-funded universities can turn out excellent graduates at a reasonable cost.

While the Ivies may still hold their mystique in the short term, as the next generation of students from more affordable institutions graduate from more reasonably priced institutions, just as intellectually capable but far less saddled in debt, the motivation for attending formerly elite universities - with their retrenched focus on money, connections - and indirectly skin color - will also lose its sheen. Americans love a bargain, and our formerly top-tier universities will be more conspicuous consumption than true value.

And the innovation? Where will that go? As the Mar-a-Lago set clamps down more and more on the Ivy League, they’ll be tied to the technologies of yesterday - petrochemical and fracking. The religious flank of the right will continue to try and limit scientific inquiry. And the white Nationalists will be too busy rewriting history to make any.

In time, these institutions may adapt - after all, they have for nearly half a millennium. Harvard University - the oldest university in America - was founded in 1636. It’s survived wars, plagues, and the New Deal. It predates the founding of the US itself by more than a century. And it was not until the 20th century that it really began to open its doors to a larger, more diverse public.

If America is to survive as a leader and not devolve into decaying oligarchy, like ancient Rome or present day Moscow, it must eventually shake off its corrupt, racist, self-dealing leadership and once again focus on its greatest asset - its people - no matter what economic, ethnic, gender, or racial walk of life those people come from.

And perhaps if we embrace these changes rather than fight them, we can create more affordable opportunities for all Americans, so that people don’t need to choose between an education and an affordable, sustainable, and satisfying life.

1. https://finance.yahoo.com/personal-finance/student-loans/article/student-loan-overhaul-starts-july-1-what-borrowers-should-know-150138537.html. Accessed July 31, 2026.