As warplanes roared overhead celebrating Independence Day on 4 July, United States President Donald J Trump signed into law a bill that dramatically downsizes the federal government’s role in financing America’s colleges and universities.

Dubbed (by Trump) the ‘One Big Beautiful Bill’ (OBBB, House of Representatives Bill), the budget reconciliation law alters how Pell Grants (available to the nation’s poorest students) are calculated in financial aid formulae.

It drastically reduces the amount of money students’ families can borrow for them under the federally insured student loan programme, imposes a graduate ‘earning test’ for programmes to maintain their access to federal student loans, and ends the Public Service Loan Forgiveness programme that former president Joe Biden had expanded four years ago.

The US$1 trillion cut to Medicare could result in 3.4 million college and university students losing their healthcare and the closure of rural hospitals run by universities.

The bill also increases the endowment tax for half of America’s colleges and universities.

Though the bill does not mention America’s historically black colleges and universities (HBCUs), because a disproportionate share of their students are economically disadvantaged, cuts to student aid, loans and Medicare will fall more heavily on students attending these institutions.

In total, the OBBB cuts more than a trillion dollars from the US budget over 10 years and increases the debt by US$4.2 trillion in order to pay for US$4.5 trillion in tax cuts – that will see the wealthiest 1% of American households save US$12,000 in taxes while the bill costs the poorest Americans US$1,600 a year.

Before signing the almost 900-page omnibus bill that was passed by the House of Representatives by two votes and in the Senate when Vice-President JD Vance broke a 50-50 tie, Trump called the OBBB: “The most popular bill ever signed in the history of our country.”

Three days before Trump signed the law, Secretary of Education Linda McMahon, whose department is now tasked with writing thousands of regulations required by the bill, took to X to thank Republican senators for passing the OBBB and said: “By establishing loan limits, the bill closes the spigot of federal subsidies that drive up college costs and burden families. The bill also simplifies and streamlines student loan repayment for millions of borrowers.”

Notwithstanding Trump’s comment about the OBBB’s popularity, critics of the bill, like Sameer Gadkaree, president and CEO of the Institute for College Access and Success (TICAS), who called it “one big mistake”, are more in line with public opinion.

On 18 June, Fox News, which generally supports the president, reported that a poll it had commissioned showed a 28-point gap between those who supported the OBBB and those opposed to it: 38% to 59%.

“From Congress to the White House, it’s painfully apparent that federal policy-makers are divesting from higher education access, success, and affordability,” said Gadkaree in a TICAS press release.

“This misguided direction will reverse 60 years of progress toward increased educational attainment and undermine the long-time consensus on the need to invest in a globally competitive workforce. The result will be a less prosperous nation,” he noted.

In a letter written to the leaders of the Senate a few days before the final vote, Ted Mitchell, president of the American Council on Education (ACE), writing on behalf of 35 national organisations, including the American Association of Colleges of Nursing, the American Association of State Colleges and Universities, and the Council for Higher Education Accreditation, strongly criticised the bill.

“The totality of the funding cuts, policy changes, and tax increases will have a negative impact on the ability of current and future students to access postsecondary education and harm the ability of colleges and universities to carry out their vital education and research missions,” wrote Mitchell.

Jordan Nellums, higher education senior policy associate at the New York-based Century Foundation, a progressive think tank founded in 1919, slammed the bill, especially for how it will impact HBCUs.

“The One Big Beautiful Bill represents a tremendous step backwards for investing in higher education, especially for institutions [for example, HBCUs] that have historically been underfunded and done the crucial work of educating students that come from lower- to middle-income backgrounds.”

Instead of taking a scalpel to reform some of the student loan programmes to solve the student debt crisis, the bill makes tremendous cuts to these programmes.

“As is often said, when higher education experiences a cold, HBCUs experience the flu because they educate higher proportions of low-income and middle-income students, and students from under-represented communities. The bill is a disaster for those institutions that are doing this crucial work,” Nellum told University World News.

Pell Grant changes

The OBBB changes where a recipient’s Pell Grant, which remains at US$7,395, is placed in the formula for determining student aid.

Under the old system, Pell Grants were considered ‘first-dollar’ aid, meaning that they were the first monies used to determine student aid.

“Then,” explained Jon Fansmith, ACE’s senior vice-president for government relations and national engagement, “you layer other forms of federal and state and institutional aid on top until you’ve covered the needs of the student. Changing how you make the calculation, especially given the ties between Pell eligibility and state aid programmes, is introducing a source of complexity and uncertainty in how we package aid.”

He noted: “The motivation appears to be an idea that there are students who get all their cost of attendance covered by institutional aid, a free ride scholarship.”

Under the system envisaged by the OBBB, Pell Grants will be added at the end of the calculation.

Mark Salisbury, co-founder and CEO of TuitionFit, which helps students navigate the complexities of understanding the tuition and fee structures of American colleges and universities, told University World News that the number of students who will be affected by this is relatively small.

“But, for those individual students, the difference could be substantial. It will be interesting to see how the institutions respond to it. It’s not crazy to think that the institutions will just say: ‘Well, I’m not making money off you anyway, so we’re not going to help’,” he noted.

The OBBB provides for a US$10.5 billion top-up for the Pell Grant system, which is far short of the US$97 billion shortfall that the Congressional Budget Office estimates will accrue over the next 10 years.

Loan programme caps

The federally insured undergraduate loan programme, which this year allowed students to borrow up to US$23,000 over four years, remains untouched. However, the total amount of money undergraduates and their families can borrow under the federally insured programme has been dramatically reduced.

The Parent Plus programme, which for decades has allowed parents to borrow an unlimited amount of money, which, as Salisbury explained, has been pointed to as one of the reasons for America’s student debt crisis, has been capped at US$20,000.

Previously, if you wanted to go to a certain college where tuition and fees were US$70,000, explained Salisbury, if you received a US$10,000 scholarship, you could borrow US$5,500 from the federal government, which left US$54,500. Under the old Parent Plus programme, parents could borrow this every year for the four years, producing a debt of US$218,000.

Salisbury thinks that the caps to the Parent Plus programme and GradPlus programme are a necessary corrective to what he termed “a sort of slush fund” that allowed people to borrow more than they should, which contributed to the student debt crisis, which today is US$1.6 trillion.

On an ACE webinar on Thursday 10 July, Fansmith raised a number of concerns about the replacement for the GradPlus program, the Graduate Federal Loan Cap System (GFLCS), and the government’s distinctions between what are termed “graduate programmes” and “professional programmes”.

The latter, he said, are what we think of as terminal degrees: PhDs, MDs, JDs, MBAs. They have different borrowing limits than do regular graduate programs: US$20,500 a year (for a maximum of US$100,000) for regular graduate programs vs US$50,000 a year (for a maximum of US$200,000).

“We’re still working through what the impacts would be,” said Fansmith, “the one that’s most immediate is around the health professions. If you look at the averages for an MD programme, dental programme, or veterinary programme, both on annual and aggregate levels, on average they exceed the US$50,000 and US$200,000 level.

“We have a lot of concern about what that might mean, especially in those fields where we don’t have nearly as many people entering, completing, and entering the workforce as we frankly need in this country,” he noted.

Fansmith went on to say that students who require more money than they can borrow from the federal government will have to go to the private loan market.

According to the Higher Education Inquirer, in 2023, the private student loan market was valued at US$412.7 billion and is expected to grow to almost a trillion dollars by 2032.

Borrowing from organisations like Sallie Mae (Student Loan Marketing Association) or the Massachusetts Educational Financial Authority, a not-for-profit education lender, explained Salisbury, is different from borrowing from the federally insured student loan programme.

“It’ll be much harder to do because the private lender is going to have a much more stringent set of criteria to determine whether I, as a student or parent, am in a position to be able to pay back the loan,” he said.

HBCUs will be especially hard hit by the caps, said Nellums.

“In 2012, the Obama administration introduced stricter credit requirements to be able to qualify for the Parent Plus Loan Program. Even with what was a minor tweak to the program, nearly 30,000 students experienced adverse credit checks.

“And HBCUs lost about US$150 million, almost 20% of their total funding,” said Nellums.

A 2019 study reported that parents of 19% of Black students at HBCUs took out Parent Plus loans to help pay for their children’s college education, even though they make up only 12% of the national student body. Since the chronically underfunded HBCUs do not have the resources to make up this shortfall, enrolment is likely to suffer.

The replacement of the GradPlus programme by one with tighter borrowing limits will be devastating to HBCUs, he says, because nearly 40% of these loans go to students who are attending HBCUs.

‘Pie in the sky’ accountability tests

Both ACE’s officials and Salisbury wondered aloud about how the ‘accountability’ mandate created by the OBBB will work.

According to Fansmith, the assumption is: “If you enter a programme and you have to borrow to attend this programme, you should be earning enough money to repay your loans. You should be able to out-earn someone who doesn’t have your credential or doesn’t have a credential at your level.

Under the OBBB, in order for students to be able to access federally insured student loans, programmes must demonstrate that four years after graduation, their graduates earn 50% more than workers in that state between the ages of 25 and 34 who have only a high school diploma; if most of a programme’s students come from outside the state, then the Department of Education (DoE) will use the national average of 25- to 35-year-olds who have only a high school diploma.

If a programme fails to demonstrate that its graduates have this earning premium in two out of three years, then students applying to that program lose eligibility for federally insured student loans. The bar on access to federal funding lasts at least two years, and to be lifted requires that the program demonstrate its graduates have earned 50% more than those with high school diplomas.

“To implement this accountability system, you’re going to need data reported by the institutions to the Department of Education. You’re going to use information from institutions or departments and individuals.

“Then you’re going to have to match this data to IRS (Income Tax) data about earnings to make these comparisons. It will be very complicated.”

Salisbury was more pungent, characterising this as only one instance in the bill when “the right hand did not know what the left hand was doing”.

Back in February and March, said Salisbury, McMahon fired thousands of DoE researchers and cancelled “the contracts for all the third-party entities that would do a lot of the heavy lifting to process, organise, and validate the data that gets collected from colleges and universities. So the quality of the data that the federal government is going to have is really up in the air; it’s not dependable or doesn’t exist”.

He added: “How in the world are you going to be able to enforce or make decisions based on the law? You’re going to need far better data than the data we actually even have right now.”

When I mentioned to Salisbury that, a number of times, I’ve been told that colleges and universities themselves don’t have this data at the programme level, he wasn’t surprised.

“No, they don’t have it. The way that the data has been collected has generally been for the students from a given school.

“For student borrowers, the federal government has access to students’ tax returns. And so from those individuals, they’ve got data on income that they can tie back to what major that student graduated from.

“So now it’s up to the school to collect that data somehow, and the school has no power to compel any of their alumni to provide that information. This is a great example of the ‘pie in the sky’ idea. But nobody ever thought about how you set up the infrastructure to get the data to be able to make the policy decisions.

“The data is not going to be dependable, and it is not going to probably even exist in a lot of cases. So how in the world are they going to actually pull that off with any reasonable confidence in it? Good luck,” said Salisbury.

He agreed with my suggestion that the data will also be skewed by comparing recent college graduates with high school leavers well into their careers in their early 30s. In places like Raleigh, North Carolina, which is one of America’s fastest-growing cities, workers with only a high school diploma are in high demand in construction, transportation, and other fields.

“You’re right. That’s one of the instances where the data that would be necessary to actually pull off what they conceptually imagine isn’t collected, isn’t available; it’s just no part of the mix,” he stated.

Salisbury ended our conversation by echoing what Fansmith, who, when speaking about the complexity of the depleted DoE writing the regulations for the changes to the Parent Plus and GradPlus programmes, said: “Smooth implementation may be too much to hope for, but our guiding star is to avoid an implosion.”

“The federal government's infrastructure here is just in total disarray. So there’s not going to be data collected, there's not going to be anything brought forward to be able to pull this off.

“There are a bunch of different things in this bill like that they [the government] are operating as if colleges function in a way that colleges actually do not,” said Salisbury.

Student healthcare consequences

Despite 67% of Americans opposing the proposed US$1 trillion cut to Medicaid, the final version of the OBBB made these cuts – which will impact almost 3.5 million financially disadvantaged post-secondary students who, according to Fansmith, get their healthcare paid for by the federal government programme. Single, able-bodied students will now be required to work 80 hours per month – in a job, through job training, or community service – to maintain their coverage.

“Students, often working students already, will now have to balance this requirement,” said Fansmith. “It puts more demands on them and is going to make it harder and harder for them to meet these requirements.”

According to Nellums, this new provision will hit students in HBCUs especially hard because of the disproportionate number of students enrolled in these institutions that are also on Medicare.

The cuts to Medicare could, also, Fansmith says, result in the closing of rural hospitals because in rural areas, university-run hospitals “tend to be the providers of care”.

Cuts to benefits, he explained, become cuts to reimbursements that are available to those health centres. This will put an additional strain on these hospitals’ budgets and could lead to hospital closures – something the governor of Maine, Janet Mills, has already warned about. With a population of only 1.4 million, Maine stands to lose US$4.5 billion and “does not have the financial resources to absorb cuts of this magnitude.”

Alternatively, states could choose to increase their contribution, which is presently 36% of Medicare costs. Since all but one state is required to have a balanced budget, politicians will have two choices: the politically unpalatable option of raising taxes or finding the monies elsewhere, which often means cutting grants to public universities.

“I suspect that every state is going to end up being in a position where the state itself has to simply raise taxes to make up the difference that the federal government revoked, because the states can't just simply say to all of the people in their state, the hundreds of thousands in Iowa [where Salisbury was when I interviewed him], for example, are going to lose their Medicaid.

“So, the state is going to have to increase the amount of money it spends, which means they're going to have to increase taxes, right? And a whole bunch of states have started to talk about this already, like we’re going to have to increase taxes. We simply can't operate like we already want, right?” said Salisbury.

According to Fansmith, in the past when faced with similar budgetary crises, states often turned to cutting their grants to the public universities and colleges because, since they charge tuition, they have what’s thought of as an independent revenue stream.

Cuts to such major public institutions as the University of Michigan (UM) or the University of California (UCal) system are difficult enough for those institutions and students, though in some cases, UM and UCal, their endowments could help soften the blow. However, for the 50 publicly funded HBCUs, which educate 77% of the total number of HBCU students, state cuts are devastating because these institutions are chronically underfunded as it is.

Ivy League endowment tax targets

According to Nellums, the reworked endowment tax can be seen as another front in Trump’s battles with Harvard, Columbia, and other Ivy League universities.

“We’ve done research that shows that a lot of the institutions that will primarily be impacted by the endowment taxes will be wealthier colleges and universities, such as Ivy League. It seems that the Trump administration is primarily targeting those institutions with the endowment tax.”

Two months ago, speaking of their endowments (which in Harvard’s case is more than US$50 billion and in Columbia’s is almost US$15 billion), McMahon all but admitted as much.

“It’s billions of dollars that could come into the government if this endowment revenue is taxed. I think the general public will look at that and say that might be a reasonable approach,” she said.

The OBBB replaces the endowment tax of 1.4% brought in in 2017, during Trump’s first term, with three tiers; the calculations are based on dividing the endowment by the total student population. Institutions that have an endowment of between US$500,000 and US$750,000 per student will continue to pay 1.4%. Institutions that have an endowment of between US$750,000 and US$2 million will pay the rate of 4%.

The rate for institutions with larger endowments is now 8%, a roughly six-fold increase. “For institutions falling into this category,” said Fansmith, “this is a massive increase in the tax they will be paying.”

Yale University will now be paying more than US$280 million in taxes on its endowment of US$41billion, said its president, Maurie McInnis, who wrote to the Yale community that, “Taxing universities undermines the education and research that fuel life-saving medical breakthroughs, live-changing innovations, and the economic growth in communities across the country and around the globe.”

According to Fansmith, the “net effect of these changes is that about half of institutions that were paying the endowment tax this year won’t have to pay going forward. But those institutions that are paying, in most cases, significantly more than they were paying before”.

Increased government control of higher education

At the end of our interview, Nellums turned from discussing the impact of the Trump administration’s cuts on critical cancer research, research into dementia, and how universities provide students with the opportunity to succeed and took aim at the Trump administration’s claim that universities are indoctrinating students with left-wing ideology and that they want to bring education back to the states.

He told University World News: “What they’re doing is actually increasing the government’s role. They’re trying to have more of a foothold in higher education by also going after the accreditation process.