A Student Loan Price Control Would Reward High-Tuition Colleges

Rep. Anna Paulina Luna (R-Fla.) is proposing a 2 percent cap on federal student loan interest rates as a way to provide relief to borrowers. The proposal has an obvious populist appeal, but it overlooks how federal subsidies have shaped the economics of higher education.

Lower interest rates would reduce financing costs for borrowers. They would not reduce the price colleges charge. By making tuition less expensive to finance, the proposal could weaken pressure on colleges to control costs and allow institutions to capture part of the federal subsidy through high tuition.

For conservatives, that would be a particularly counterproductive result. Many of the large tax exempt colleges and universities that benefit from federal student lending have become increasingly hostile to conservative ideas and Republican priorities. A policy intended to help working Americans could ultimately strengthen institutions conservatives have spent years trying to hold accountable.

A 2 Percent Cap Treats the Debt, Not the Cost

Luna is a cosponsor of H.R. 2003, the “Affordable Loans for Students Act,” which would cap federal student loan interest rates at 2 percent. The legislation would apply the lower rate not only to future borrowing but also to existing federal student loans, which would generally be modified or refinanced at the new rate.

For borrowers, a lower interest rate reduces the amount they must pay to finance their education. But federal student loans exist primarily to finance tuition and other education expenses. When Washington reduces the cost of that financing below what borrowers would otherwise pay, it increases the federal subsidy attached to attending college.

Colleges have an opportunity to capture some of that benefit. If students can finance tuition on more favorable terms, schools face less pressure to reduce what they charge. The policy could provide immediate relief to borrowers while helping colleges sustain high tuition over time.

College Tuition Is the Underlying Problem

The long-term trend in tuition shows why Congress should be cautious about making federal financing even more generous.

College Board data highlighted by CNBC show average tuition and fees of $45,000 at private nonprofit four-year colleges for the 2025-26 academic year. In-state tuition and fees at public four-year colleges average $11,950, while public two-year colleges average $4,150.

The historical figures are more striking because they are already adjusted for inflation.

Average tuition and fees at private four-year colleges have risen from roughly $13,000 in the 1970s to $45,000 today. Public four-year tuition has increased substantially over the same period.

Students are not simply struggling because they pay interest on their loans. They are borrowing to pay tuition that has become considerably more expensive.

Capping interest rates at 2 percent would leave high tuition untouched. It would make borrowing to pay that tuition less expensive, giving colleges less reason to compete aggressively on cost.

The Working Families Tax Cuts Took a Different Approach

Congress recently began addressing these incentives through the Working Families Tax Cuts, which imposed new limits on federal lending for graduate and professional education.

Beginning in July 2026, new graduate borrowers are generally limited to $20,500 per year and $100,000 in aggregate federal loans. Professional students are generally limited to $50,000 annually and $200,000 in aggregate borrowing. The law also ended new Graduate PLUS loans, which previously allowed graduate students to borrow up to a school's cost of attendance.

These changes put more responsibility for affordability back on colleges. Schools can no longer assume that the federal government will provide effectively unlimited graduate financing regardless of the tuition they charge.

Federal policy should encourage colleges to bring tuition closer to what students can reasonably afford and repay, rather than continually expanding subsidies to accommodate high tuition. A 2 percent interest-rate cap would work against that goal by making high tuition cheaper to finance with federal debt.

Conservatives Should Consider Who Ultimately Benefits

The politics of the proposal are difficult to reconcile with its populist rationale.

Large tax exempt colleges and universities have frequently clashed with conservatives over campus speech, ideological diversity, diversity programs, and other political and cultural issues. The higher education sector is also substantially more liberal than the country as a whole.

Those same institutions would receive the tuition payments financed by a more heavily subsidized federal loan system. Borrowers would receive lower interest rates, while colleges would continue collecting tuition.

If cheaper federal financing allows students to absorb high tuition more easily, colleges have less incentive to lower what they charge. Part of a subsidy intended for borrowers can therefore flow to colleges through sustained tuition levels.

For a conservative populist, that is a poor trade. Taxpayers would subsidize cheaper financing while large tax exempt universities, many of which are politically and culturally hostile to conservatives and Republicans, would face less pressure to lower tuition.

Congress Should Focus on Tuition

Student borrowers have faced rising tuition and, in many cases, years of repayment. Congress should address the incentives that produced those costs rather than add another subsidy after colleges have set their prices.

The new federal borrowing limits provide an opportunity to change those incentives by forcing colleges to respond to a more constrained source of taxpayer-backed financing. Congress should build on that approach and give the reforms time to put downward pressure on tuition.

Populist policy should challenge institutions that benefit from federal subsidies, not reinforce the system that protects them from market pressure.

CFE Takeaway

Rep. Anna Paulina Luna’s 2 percent student loan proposal promises immediate relief for borrowers but ignores how colleges would respond. Cheaper federal loans would not lower tuition and could help colleges sustain high tuition by making it easier to finance. That would undermine the cost discipline created by the Working Families Tax Cuts while benefiting large tax exempt colleges and universities that are often hostile to conservative priorities. Congress should focus on lowering tuition, not increasing the federal subsidy used to finance it.