The Higher Education Act: A Landscape of Transformation and Impact

The Higher Education Act (HEA) of 1965 is a landmark piece of legislation designed to expand access to higher education and strengthen the resources of colleges and universities in the United States. It regulates and governs colleges, universities, and the administration of higher education programs. It provides financial assistance to students seeking postsecondary education and improve resources provided in higher education institutions across the nation. While there are still gaps in access and degree-completion rates across the country, more people are going to college than ever. In 1965, only about 3.97 million people enrolled in public colleges. Since its enactment, the HEA has undergone several reauthorizations and amendments to adapt to the evolving needs of students and institutions. This article explores the significant impacts of the HEA, including recent changes introduced by the "One Big Beautiful Bill Act" and other proposed reforms.

Historical Context and Evolution of the HEA

President Lyndon B. Johnson signed the Higher Education Act at his old college in San Marcos, Texas, on November 9, 1965, to “strengthen the educational resources of our colleges and universities and to provide financial assistance for students in post-secondary and higher education.” The act’s fifty-two pages are divided into eight titles. The first title allotted $25 million to establish “urban land-grant” programs of community service, including continuing education. The second appropriated $50 million for building up library and media collections and training specialists. Title III set aside $55 million to help “developing institutions” largely southern African American schools that were “struggling for survival and are isolated from the main currents of academic life.” Potential faculty were to be encouraged with special fellowships, and “cooperative” partnerships with stronger northern schools were also envisaged.

Title IV was revolutionary in its restructuring of federal aid to students. NDEA needs-tested loans were extended and complemented by an additional $70 million in aid to schools for Educational Opportunity Grants to undergraduates “of exceptional financial need,” insurance for $700 million in commercial loans (to be doubled two years hence), and $129 million for work-study programs, an extension of the Economic Opportunity Act of 1964.

Title V sought to improve the preparation of teachers and established the National Teacher Corps, an analog to President Kennedy’s Peace Corps, “to strengthen the educational opportunities available to children in areas having concentrations of low-income families.” Experienced teachers and inexperienced teacher-interns were to be enrolled and sent to these areas to augment teaching staffs. The title also approved $40 million for forty-five hundred fellowships to support training for school teachers. Title VI authorized $40 million for classroom televisions and training of media specialists. Title VII expanded the funding of the Higher Education Facilities Act of 1963, while Title VIII prohibited “federal control of education.”

The HEA has been reauthorized multiple times, including in 1968, 1972, 1976, 1980, 1986, 1992, 1998, and 2008. The HEA was set for formal reauthorization in 2013, but Congress extended this deadline to 2015. However, there have been several considerations, recommendations, and proposals for new amendments to the bill.

Read also: Key Trends in Education

Key Provisions of the HEA

The HEA addresses various aspects of higher education, including:

Financial Aid: The HEA provides grants, loans, and work-study programs to assist students with the costs of higher education. Students who are eligible for a Pell Grant must apply by completing their Free Application for Federal Student Aid (FAFSA). Stafford Loans are a type of federal student loan that must be repaid. These fixed-rate loans, also called direct loans, help students with higher education costs. The government offers Stafford Loans as either subsidized loans, meaning the government pays interest until the student graduates, or as unsubsidized loans, where the student pays all of the interest while in school.
Institutional Support: The HEA provides funding to colleges and universities to improve their resources and programs.
Teacher Preparation: The HEA supports programs to prepare and train teachers, particularly in areas with concentrations of low-income families.
Research and Development: The HEA funds research and development activities in higher education institutions.
Accreditation: The HEA provides funding and oversight for accreditation of institutions and programs.
International Education: The HEA supports international education and foreign language studies.

The "One Big Beautiful Bill Act": A New Era for Higher Education

The “One Big Beautiful Bill Act” (the “Act”), which recently became law, makes significant changes to federal financial aid programs administered under Title IV of the Higher Education Act of 1965 (“HEA”). These changes impact students and institutions of higher education (“IHEs”), and include reductions in the availability of federal student loan funding, new repayment options for student loans, and regulatory provisions intended to promote institutional accountability. These provisions continue the current administration’s focus on reforms to higher education that improve student outcomes and demonstrate a return on investment.

Effects on Loans Available to Students

The Act imposes various loan limits and program cuts impacting federal funding available to undergraduate, graduate, and professional students taking effect on July 1, 2026. Effective July 1, 2026, the law eliminates the Graduate PLUS loan program. Graduate student borrowing will be capped at $20,500 per year, with a lifetime borrowing limit of $100,000. Professional student borrowing will be capped at $50,000 per year, with a $200,000 lifetime borrowing limit. The current Graduate PLUS program allows graduate and professional students to borrow up to the full cost of attendance each year. Effective July 1, 2026, the law imposes limits on the Parent PLUS program of $20,000 per year for each dependent student, with a lifetime limit of $65,000 per student.

These limitations on student loans may result in some students (or their families) seeking private market loans to access additional funding for education. For other students, these limitations may mean they are unable to access sufficient affordable capital to advance their education.

Student Options for Loan Repayment

The Act makes significant changes to the options for student loan repayment by terminating most current income-driven repayment plans for loans originating after July 1, 2026, including the “Save on a Valuable Education” (SAVE) “Plan, Pay As You Earn” (PAYE) Repayment Plan, and “Income-Contingent Repayment” (ICR) Plan. In place of these repayment options, borrowers will be required to select from two new repayment plans: (i) Standard Repayment Plan with fixed payments for 10 to 25 years depending on the amount borrowed, and (ii) the Repayment Assistance Plan (RAP), which requires minimum monthly payments based on the borrower’s adjusted gross income. Borrowers who took out a loan prior to July 1, 2026, can continue to utilize the standard, graduated repayment, and extended repayment plans for those loans.

The law replaces all existing repayment plans with two new plans: a new “standard” plan and a new income-based plan, the “Repayment Assistance Plan” (RAP). For new borrowers, the new “standard” plan collapses the existing standard, graduated, and extended plans into one plan with fixed monthly payments and different repayment terms based on the borrower’s total outstanding principal at the time they enter repayment. The higher the balance, the longer the repayment term. RAP bases a borrower’s monthly payment on their adjusted gross income (AGI) and family size, and lowers a borrower’s payment by $50 per month per dependent child. As such, the dependent child credit does not apply equally to all borrowers, as those with lower incomes (and resulting lower payments) will not receive the full $50 reduction.

Under RAP, if a borrower’s monthly payment is not enough to cover their accruing interest, the federal government subsidizes that unpaid accrued interest so the balance is always decreasing, rather than ballooning. RAP also includes a “principal subsidy” to ensure a borrower’s principal balance decreases each month, even if their payment is too low to reduce their principal. In other words, if a borrower’s monthly payment does not reduce their principal balance by at least $50 per month, the federal government will kick in enough to ensure their principal decreases by at least $50.

Earnings Premium Framework

The Act establishes a new accountability framework, the Earnings Premium metric, intended to hold IHEs accountable for student income levels following graduation and to demonstrate “return on investment” associated with attaining a degree from such IHE. In general, for both undergraduate and graduate programs, the median earnings of those who completed the programs must exceed the median earnings of those who did not attend comparable programs. The failure of a program to meet the minimum earnings standards could result in the loss of Title IV eligibility for students in that program to receive federal funding and requires public disclosure, including to currently enrolled students.

IHEs can appeal data determinations to the Secretary of Education (the “Secretary”), who may permit continued eligibility during the pendency of the appeal. Programs determined ineligible may reapply for Title IV participation after two years of being ineligible. ED will measure median income for graduates, the key metric to determining whether an institution meets or fails the new test. Institutions could look to the Gainful Employment rules to anticipate some of these details, which, for example, use data from the Internal Revenue Service and Social Security Administration for purposes of determining median income.

Delays to Biden-Era Regulations

Further, the Act delays until July 1, 2035, the borrower defense rule and the closed school discharge regulations that were promulgated during the Biden administration. Under these rules, federal student loan borrowers are entitled to cancellation of their loans in certain instances in which their school engaged in misconduct (borrower defense rule) or where their school closed while they were enrolled or shortly after they withdrew (closed school discharge rule). The now delayed rules included expanded grounds for discharge, process simplification, and automatic discharge for closed schools, which would have made it easier for students to have their student debt discharged.

Impacts on Institutions of Higher Education (IHEs)

The changes introduced by the "One Big Beautiful Bill Act" and other potential reforms have significant implications for IHEs.

Revenue Pressure on IHEs

For IHEs, these loan limits will place them under increasing financial pressure. For many institutions, tuition is the IHE’s main revenue source. New limitations on student loan funds may require IHEs to reconsider tuition rates or seek other avenues to financially support attendance, such as additional scholarships and grants. Loan caps and the elimination of the Grad PLUS loan may make it more difficult for students to enroll in tuition-dependent graduate and professional programs.

Changes to Cohort Default Rates

Cohort default rates measure the percentage of student loan borrowers who default in repayment of their loans within a specified timeframe after entering repayment as compared to the total number of borrowers within the applicable cohort. Institutions with failing cohort default rates may lose eligibility to participate in Title IV and face other sanctions. If the new limits on total debt amount and the RAP effectively mitigate total student debt load and maintain repayment affordability, IHEs may see an improvement in their cohort default rates. To the extent available, borrowers will also have to contend with the repayment terms of private loans, though default under those loans will not count against an IHE’s cohort default rate.

Increased Metrics for Institutional Accountability

The Act emphasizes the return on student investment in their education. The administrative burden to IHEs to comply with these new reporting requirements may be steep. Institutions could look to the Gainful Employment rules to anticipate some of these details, which, for example, use data from the Internal Revenue Service and Social Security Administration for purposes of determining median income. ED delayed implementing other reporting obligations, including those associated with the current Gainful Employment/Fair Value Transparency regulations.

Addressing Affordability

Absent action on their parts, IHEs may see the demographics on their campuses shift, if the new loan limits and changes to loan availability limit the ability of some students to enroll. Some IHEs may have fewer applicants and fewer enrollees. Some IHEs may be able to make up some of the lost tuition support through scholarships and grants, but those solutions will be increased expenditures on already strapped institution budgets. IHEs with significant portions of their student bodies receiving federal financial aid are likely the most directly hit.

Changes to Student Loan Counseling

IHEs that participate in Title IV are required to provide counseling to students taking out loans. The changes to loan availability, new limits on loan amounts, and changes to available loan repayment programs changes the nature and type of counseling that loan counselors provide to students.

Implementation of the Earnings Premium Metric

IHEs may be faced with strategic decision-making when considering offering new programs or addressing programs that don’t meet the metric. IHEs with regard to whether they meet this metric and carefully consider appeal for inaccurate reporting.

New Partnership Opportunities

IHEs may consider innovative, industry partnership opportunities to address both the new affordability and accountability terms. Institutions may seek to partner with companies to fund relevant undergraduate and graduate programs. These partnerships could provide both funding to the IHEs and a pipeline of educated, skilled students to be employed at the company following graduation.

Changes to Educational Programming

IHEs may close, reduce the size of, or change the scope and focus of curriculum for, certain types of programs where the “return on investment” may not be as clear. These impacts may be felt most acutely by community colleges and institutions offering associate’s degrees, though graduates who continue to be students would not be counted against an IHE’s performance, e.g., students in pipeline programs from associate’s degrees to bachelor’s degrees.

Other Notable Amendments and Proposals

College Affordability Act

In 2019, members of the House Committee on Education and Labor proposed a bill, the College Affordability Act, to make amendments to student federal financial aid access.

PROSPER Act

In December 2017, House Republicans announced that they had finalized an overhaul of the act, authored primarily by Representative Virginia Foxx of (R - N.C.), the chairwoman of the House Committee on Education and the Workforce. The new bill is called the Promoting Real Opportunity, Success and Prosperity through Education Reform (PROSPER) Act. The act aims to simplify the federal financial aid process and expand federal work-study programs. Some concerns have been raised by advocacy groups about how the PROSPER Act would affect LGBTQ students. Additionally, the PROSPER Act includes a weaker version of the provision requiring universities to increase student voter registration, a requirement present in the Higher Education Act since 1998.

Gainful Employment Rule

In the spring of 2009, the Obama administration announced that it was considering strengthening various consumer protections in higher education, including establishing guidelines about programs eligible under the gainful employment provision of the HEA. After conferring with stakeholders, the department proposed allowing schools to retain access to financial aid as long as programs met either a loan repayment metric or a measure of student loan debt compared to earnings of graduates.

The for-profit industry filed a lawsuit to stop the implementation of the gainful employment rule. The department adopted revised regulations in May 2014 that deleted the repayment rate measure identified by the judge and made other adjustments. Multiple for-profit college associations filed lawsuits to stop the revised version of the rule. On the other side of the issue, a group of state attorneys general sought court action to force the implementation the rule after the Trump administration delayed its enforcement. In August 2018, Secretary of Education Betsy DeVos proposed to rescind the gainful employment regulations, a step completed in July 2019. The repeal was effective on July 1, 2020, but allowed colleges to voluntarily cease compliance immediately. The administration's 2019 repeal of the gainful employment rule has been challenged by 18 state attorneys general, led by Xavier Becerra of California and the American Federation of Teachers. The department began the process of re-instituting a gainful employment rule in December 2021, holding a set of negotiating sessions with stakeholders in 2022. In early 2023 the department published a notice seeking input on metrics that could be used to identify low-financial-value programs in postsecondary education (beyond those vocational programs subject to gainful employment).

The HEA and Student Loan Debt Cancellation

The Higher Education Act has been proposed as a potential way to cancel student loan debt. According to a paper by the Legal Services Center at Harvard Law School and commissioned by Senator Elizabeth Warren in September 2020, the Secretary of Education may be able to cancel student loan debt.

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