The Median Cost of College Plan: A Recipe for Student Aid Chaos

Yesterday, House Republicans introduced their budget reconciliation bill. Our ongoing analysis has so far revealed that Congressional Republicans are significantly divorced from the desires of the American people when it comes to higher education policy, and that the dramatic shifts in student aid policy in the bill will result in substantially less funding and fewer consumer protections for students. In this piece, we explore one overlooked provision that would completely shake up how federal student aid is awarded and how much money students have to pay for college. This provision is untested and no data exist that allow for an accurate understanding of how this proposal would actually play out for students and institutions. It is confusing for students to navigate—setting ever-changing loan limits that will be difficult for students to predict. It will be challenging for institutions to communicate when a student may run out of federal loan eligibility, leaving many students to lose loan eligibility before they get to graduation.

If this all sounds very complicated, it is. And there has been little public discussion or analysis of this provision, which is scary given the huge ramifications it would have for students and institutions.

Even if this was a well-thought out proposal, a functioning Education Department is needed to execute it. And President Donald Trump just gutted it, leaving just three employees in the office that would establish the MCC, the National Center for Education Statistics. We can be assured that there will be extreme disruption and confusion if this were to be enacted, which would threaten student success and completion, squeeze institutions financially, and lead to unintended consequences in institutional behavior. But that little detail does not seem to be part of the Republicans on the Education and Workforce committee’s thinking.

There are several unanswered or only partially answered questions that policymakers must be asking now. It’s unlikely these questions will get asked and answered before the bill moves, but we have to understand how this will work on the ground for students and institutions before the Senate acts.

Because students would no longer have an annual borrowing limit other than MCC, they risk running out of loan eligibility in the middle of their program if their program costs more than the median, particularly for undergraduate students. In the only available high-level analysis of the policy the median COA for bachelor’s degrees is about $26,000. If that’s accurate, on average, bachelor’s degree students could run out of loans within two years, exhausting their eligibility by their junior year. Institutions can intervene to limit loans annually to prevent students from running out, but that will take a lot of thought and proactive effort from institutions. Students could really be caught flat footed and this might lead to a drop-out spike in years 2 and 3 of their education.

There is scant detail in the bill about the logistics of MCC. There currently is no median COA data available by program level. There will be eventually under financial value transparency regulations, but the implementation of those are delayed meaning policymakers are operating blindly while crafting this policy. This policy also doesn’t address that colleges calculate cost of attendance in wildly different ways, and that living costs vary widely depending on city, state, or region of the college. One national figure as a limit glosses over local contexts. It will also be important to understand when and with what age data this MCC would be constructed. If it is based on data collected two years ago (given many data take that long to collect and clean), the result will be lower than the current needs of students.

Federal law determines the maximum amount of aid students can receive. Colleges must calculate a “cost of attendance,” an estimate of how much it is to enroll. The cost of attendance, also called COA, must factor in not only tuition and fees but also students’ living expenses. Research shows that financial aid is most likely to help students succeed academically when it covers all expenses.

Schools have broad discretion with setting these costs based on their unique needs and location. When students fill out the FAFSA, the federal government calculates what is called a Student Aid Index, or SAI, an estimate of how much they can afford to contribute to college costs. Institutions subtract students’ SAI by the college’s cost of attendance to determine “unmet need,” the amount of financial aid a student can receive. This unmet need is exactly where federal, state, and institutional aid and private loans come into play, never to surpass the full cost of attendance.

Under the House reconciliation bill, institutions would still develop their own COA, but they’d then report that information to the U.S. Department of Education. The department would then use that information to determine a new national median cost of college (MCC) for each distinct academic program. That median would become the new cap for how much students can receive in Pell Grants and federal student loans (but not Parent PLUS loans). If a college’s COA is higher than the national median, students could still use state or institutional aid, or Parent PLUS loans or private loans, to cover the extra cost, but not federal student loans or Pell money.

This proposal by itself is confusing to follow—it involves setting essentially two separate COAs, which students and families would need to keep track of (how could you possibly communicate this clearly to students and families?). But the bill also would change how loans are distributed. Currently, subsidized (interest doesn’t accrue while in school) and unsubsidized student loans (interest accrues once the loan is disbursed), except for Parent PLUS and Grad PLUS loans, come with both yearly and lifetime limits. Dependent undergraduate students, for instance, can only borrow up to $31,000 in subsidized and unsubsidized loans over their lifetime (and can only borrow $5,500-$7,500 per year), while graduate students can borrow up to $138,500 over their lifetime in unsubsidized loans, inclusive of their undergraduate loans (and can only borrow $20,500 in unsubsidized loans per year).

The bill would remove annual borrowing limits, but would institute new lifetime loan caps: $50,000 for all undergraduate students, $100,000 for graduate students, $150,000 for graduate professional students, like those enrolled in medical and law school, and an overall limit of $200,000 across undergraduate and graduate education combined. It would also get rid of all Grad PLUS and subsidized loans.

Under this new system, Pell and federal student loans will be limited annually by the new national MCC. If unmet need still remains, other forms of aid—Parent PLUS, state, and institutional aid comes into play. If students reach the limit of MCC and their COA is more expensive than MCC, even if they still have remaining eligibility for Pell and loans, they will only be able to access Parent PLUS loans, private loans, institutional, and state aid. Additionally, since there are no longer any set annual limits, student borrowing per year would only be limited by MCC allowing students to borrow more per year than they would under current law. However, that means they could exhaust their eligibility a lot faster. Institutions under the bill would be able to limit loans annually, as long as such a limit is applied consistently, but it is unclear how many institutions would do this.

Every policy always introduces unintended consequences, and it’s up to policymakers to think these through. Republicans assume that the policy will make institutions cut costs. But institutions could artificially inflate their COAs in shorter-term credentials, for example, to boost borrowing limits and suck up those dollars.

There seems to be no clear guidance for what this would mean for students who transfer mid-year between programs with different median costs (even within the same schools). And students without a program of study may be lumped into a general education MCC that is not reflective of their needs. In addition, many students change their major throughout their academic career, changing their MCC. Lastly, many students typically apply to schools and not specific programs making it challenging for them to understand how their costs may change depending on what major or concentration area they choose.

Financial aid offices are often understaffed. They also rely on financial aid software and systems to package and distribute aid in compliance with law. The speed and magnitude of these changes will make it a challenge for financial aid administrators to process and communicate to students.

The end result of this policy is something that is truly hard for anyone to understand—policy experts and students alike—and will make college costs and financial aid less transparent. This policy is so confusing and has so little data to back it up that it feels like it falls more under a dramatic policy shift rather than truly just a budgetary adjustment required for it to be part of a reconciliation package.

We will continue to analyze details of this policy, and track its progress through the reconciliation process. Stay tuned for further analysis and commentary on this policy and other budget reconciliation priorities.

Updated 5/6/2025 to change median cost of attendance to median cost of college, the term used in the House Republican bill.