Trump’s OBBBA hasn’t Made College Any Cheaper. More Student Debt Cannot Be Lawmakers’ Only Answer.
By Aissa Canchola Bañez | July 29, 2026
One year ago this month, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, making unprecedented cuts to federal financial aid programs that students and families have relied on to pay for college. The more than $300 billion in cuts to higher education—particularly aimed at federal student loans and loan repayment programs—were pushed by the bill’s supporters as a way to force schools to lower their costs. Unsurprisingly, we have yet to see a significant wave of colleges announcing tuition cuts. In fact, college tuition remains on the rise.
While Congress considered these changes, we, along with several of our partners, sounded the alarm on how these cuts would simply force students and families to take on debt elsewhere, particularly from the private student loan market where financing is more expensive and risky.
Now that students and families are scrambling to figure out how they will cover rising college costs with less federal student loan and grant aid, you would think that policymakers would be looking for ways to reduce the harm Trump’s OBBBA is causing to their constituents, or pushing states to reinvest in higher education to bring down costs. Nope. Instead, Congress wants to help make it easier for schools to promote loans from some private student lenders without performing the most basic checks on whether their products are actually in the financial interest of students and families.
Why is Congress trying to pick winners and losers in the private student loan market?
The State-Based Education Loan Awareness Act (S. 4097), introduced by Senators Murkowski, Reed, Cassidy, and Shaheen, would allow schools to promote certain state-based and non-profit student loan lenders directly to students without having to comply with preferred lender rules. They are putting their thumb on the scale in favor of private student lenders accused of cheating students repeatedly in the past.
These rules were established in response to scandals where multiple lenders (including state-based, non-profit lenders) were paying kickbacks to schools—or, in some cases, school employees—in exchange for being included on preferred lender lists. Perversely, these lists are presented to students by their schools and can be the first places that families turn when seeking out financing, as students often trust school financial aid administrators to have their best interests in mind. In response, during the 2008 reauthorization of the Higher Education Act, the federal government enacted new rules to tamp down on these abuses and other conflicts of interest to ensure that schools were only advertising loan options in the best financial interest of their students.
Over the next decade, preferred lending rules largely flew under the radar as Congress expanded the federal loan program, which had historically allowed students and parents to borrow up to the cost of attendance to pay for their college education, reducing reliance on private or state-based loans. Now that the OBBBA is law—ending the Graduate PLUS loan program and setting new caps on how much students and families can borrow from the federal government—students are being forced to rely on private loans to fill the gap. Over the last year, we have seen states, fintechs, and bank-affiliated lenders rush to try to fill the void in financing—not with grants or resources to bring down college costs, but with more debt.
Policymakers beware: state-based loan programs are simply private loans and have a long track record of extraordinarily abusive debt collection practices.
The State-Based Education Loan Awareness Act may do a whole lot more than just raise student awareness about state lending options—it is likely to supercharge state-based lending across the board. While lobbyists for state lenders tout their products as “low-cost” and “better private loan options” for students, state lenders engage in many of the same borrower-harming activities of other private lenders, while leveraging the harsh and punitive collections tools of the government.
Next month, we will release a comprehensive analysis of the growing state-based lending industry and the risks these products pose to students and families. For now, here’s what you need to know about state-based student lending:
- There is no evidence that, on the whole, state-based lenders offer consistently better rates, terms, conditions, repayment options, or borrower protections than their for-profit counterparts. Like private student loans, state-based loan borrowers generally lack access to Income-Driven Repayment, Public Service Loan Forgiveness, and pathways to cancellation like Total and Permanent Disability Discharge, Borrower Defense to Repayment, and Closed School Discharge. In fact, on average, state-based lenders are generally more expensive and even less accessible to borrowers as they have significantly higher credit score, income, and other underwriting requirements compared to the overall market. In other words, a pivot toward state-based financing may reduce college access for communities of color, low-income families, and students from groups that already struggle to access higher education.
- When borrowers fall behind, state-based lenders have the debt collection powers of the state, which allow them to offset tax returns and critical government benefits and even garnish wages with limited due process. State-based student lenders have been found deploying aggressive debt collection practices against borrowers who fall behind—including going after the parents of deceased students, suing thousands of students, garnishing wages and state tax refunds, and even revoking professional licenses.
- Complaints submitted to the Consumer Financial Protection Bureau (CFPB) show that borrowers struggle to get support and any relief that state-based lenders do promise. While state-based loans often claim to be more borrower-friendly, thousands of borrower complaints submitted to the CFPB show this is often not the case. Borrower complaints against the Rhode Island Student Loan Authority show that borrowers often cannot access cosigner release and face inflexible repayment options. Complaints against the Massachusetts Educational Financing Authority (MEFA) show lending staff telling borrowers there will be “no help” when they reached out due to a sudden job loss. A borrower reported that this response from MEFA made them feel like the lender did not care “whether [she] starve[d] or [couldn’t] make rent.” While state-based lenders may tout their products as more borrower-friendly, many of these complaints mirror the stories of borrowers who struggle with traditional private student loans.
- State-based lenders often use their state government affiliation to avoid having to follow laws that apply to practically all other lenders. State-based lenders have argued that they have special privileges, like sovereign immunity against borrower lawsuits and not being bound by statutes of limitations. Where courts have agreed, it’s much more difficult for borrowers to hold these lenders accountable in court when they engage in illegal activities, and to protect themselves from collection of very old debts. State-based lenders also lobby heavily for special treatment under state laws intended to protect student loan borrowers. For example, the Finance Authority of Maine is exempt from certain requirements under a host of Maine’s state consumer protection laws meant to protect borrowers and increase transparency in the private loan market. The Vermont Student Assistance Corporation is also exempt from Vermont’s Fair Credit Reporting Act, which ordinarily ensures that lenders only report accurate information to credit bureaus.
As the Trump Administration guts federal oversight, the State-Based Education Loan Awareness Act will further diminish transparency into the private loan market.
Under the Trump Administration, the CFPB has reduced its oversight and enforcement activity over the private student loan market at a time when students and families will be forced to rely on these products to finance their college dreams. In this context, preferred lender disclosures are crucial to protecting students and families from being steered by their colleges into products that are against their financial interest. By granting an exemption from these protections, the State-Based Education Loan Awareness Act will incentivize schools to abandon the disclosures and transparency requirements that currently accompany preferred lender arrangements, which can only hurt working families and help push them into debt with predatory terms that they did not have the opportunity to understand.
Congress must learn from the past and ensure that safeguards are strengthened and students and families are protected.
The OBBBA will deliver billions of dollars in windfall profits to the predatory private student loan market. Policymakers should boost protections and transparency for students who need to take out these loans, including by strengthening preferred lending rules to ensure that lenders—regardless of whether or not they are state-based—do not capitalize on the financial desperation of students and push families further into debt. S.4097 moves in the exact opposite direction and would exempt an entire sector of lenders from critical preferred lender rules that provide basic safeguards for families, and will leave borrowers even more vulnerable to abuse and financial distress.
When S.4097 comes before the Senate Health, Education, Labor and Pensions Committee on July 30th, policymakers should move to reject it.
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Aissa Canchola Bañez is the Policy Director at Protect Borrowers. Previously, Aissa led outreach and engagement efforts for the Office for Students and Young Consumers at the Consumer Financial Protection Bureau and served in senior policy roles in the U.S. House of Representatives and U.S. Senate. This blog was also published on In Debt, a Protect Borrowers Substack.