How “Pay-For-Performance” Endangers YU’s Religious Degrees

With federal student loan debt in the United States exceeding $1.8 trillion, policymakers are now moving from expanding relief to tightening rules on borrowing and repayment. The latest federal policy change aims to reemphasize fiscal responsibility in the student loan industry, but it may have unforeseen economic effects.

At the heart of the controversy are new limits on federal borrowing and new accountability requirements for colleges, announced by the U.S. Department of Education under the current administration. The changes place a limit on the total amount that a student can borrow: graduate students will be subject to lower lifetime limits and borrowers of professional degrees will have to operate within tighter limits. Some academic programs will also be denied federal loans if their graduates do not meet certain earnings targets, a move towards “pay-for-performance” in higher education finance.

This policy change is a response to the rising tuition inflation and default rates. Regulators are trying to curb high borrowing by capping borrowing and tying institutional access to job market outcomes. For students, the expectation is that their degrees will provide economic benefits rather than lead to debt with little return.

For colleges and universities, particularly those with lower-income and non-traditional students, the new accountability system could be a double-edged sword. Colleges and universities that serve students with lower post-graduation salaries may have limited access to federal funding and may need to provide more grants or reorganize their academic programs.

For individual borrowers, these changes come at a time of upheaval in repayment. The Saving on a Valuable Education (SAVE) income-driven repayment plan, which had lowered payments and sped up forgiveness for many, remains legally contested and thus blocked, resulting in the reopening of older repayment plans that typically cost more.

Adding to the complexity, the tax treatment of loan forgiveness has undergone a change: forgiveness of debt under income-driven repayment plans after 2025 is now taxable as federal income tax, which may come as a surprise to borrowers who expected it to be tax-free.

Another example of a recent policy reversal that reflects the current volatility that borrowers are experiencing is that the Department of Education temporarily halted wage garnishment for defaulted loans just before it was set to begin.

Borrowing patterns and the overall labor market could be significantly affected. More stringent borrowing terms could lead to fewer students borrowing from the federal government, thereby resorting to private borrowing terms that are less favorable. On the other hand, students who come from low-income families, who are most in need of federal borrowing, could be left with little financial choice but to forgo further education.

For a school like Yeshiva University, these federal reforms carry significant implications for both students and the administration. As a private university with a large population of students pursuing graduate and professional degrees in fields such as law, social work and medicine, Yeshiva relies heavily on federal student loan programs to make education accessible. Lower borrowing caps could limit opportunities for students pursuing advanced degrees, especially those from Orthodox Jewish and other modest-income backgrounds who depend on financial aid to bridge the gap between tuition costs and family resources.

Additionally, if the “pay-for-performance” measures are applied uniformly across institutions, programs that emphasize religious vocations, where salaries are typically lower, could face scrutiny or reduced funding. Especially for YU’s religious programs, administrators may need to find alternative sources of aid, such as increased alumni donations or community-based scholarships, to maintain affordability and uphold the university’s mission of integrating Jewish values with academic excellence. Ultimately, these policies at Yeshiva will mean that Yeshiva must focus on balancing financial sustainability with its commitment to accessibility and religious identity in an increasingly complex higher education landscape.

Too much experimentation with terms of repayment and eligibility criteria creates uncertainty, a major cost in credit markets. If borrowers are unable to make a clear forecast of future payments or forgiveness, they may put off major life decisions, such as purchasing a home or opening a business.

The current overhaul represents a significant turning point in federal student loan policy, one that weighs financial considerations against traditional public objectives of increasing access to postsecondary education and reducing household debt.

Whether the reforms will successfully dampen tuition inflation, promote responsible borrowing and maintain access for disadvantaged students is a question yet to be answered and will be reflected in economic data and balance sheets in the years to come.

Photo Credit: Unsplash

Photo Caption: Graduates