Impact of the One Big Beautiful Bill Act on Student Loans
The recently signed 2025 tax and spending bill, approved by President Trump on July 4th, brings significant changes to federal student aid programs, effective primarily on July 1, 2026. Below is a detailed overview of the changes:
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### 1. Direct (Parent) PLUS Loan Caps and Repayment Plan Changes
- The Grad PLUS loan program for graduate and professional students will be **eliminated** starting July 1, 2026. - Graduate and professional students will be limited to borrowing through Direct Unsubsidized Loans, with new caps: - Graduate students: $20,500 per year, $100,000 total - Professional students: $50,000 per year, $200,000 total (inclusive of undergraduate loans) - Existing Parent PLUS borrowers enrolled in income-contingent repayment (ICR) will be able to continue until June 30, 2028, but will eventually need to switch to a modified IBR plan. - New Parent PLUS borrowers (after July 1, 2026) will have only the standard repayment plan, which does not qualify for Public Service Loan Forgiveness (PSLF).
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### 2. Pell Grant Eligibility and Funding Changes
- The law adds about $10 billion in mandatory funding for Pell Grants in FY 2026 to address prior shortfalls. - Students receiving grants or scholarships covering their entire cost of attendance will become ineligible for Pell Grants. - Students with a Student Aid Index (SAI) exceeding twice the maximum Pell Grant award will not be eligible starting July 1, 2026. - Foreign income must now be included in the Pell Grant eligibility income calculation. - Pell Grant eligibility for students enrolled less than half-time has been maintained, unlike the House proposal which sought to remove this. - The bill expands Pell Grants to students enrolled in short-term workforce training programs (150–599 clock hours), but eligibility is tied to local labor market demand as determined by state governors.
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### 3. School Accountability and Institutional Risk Measures
- New accountability measures for institutions participating in federal aid programs have been established: - For undergraduate programs, median earnings of completers 4 years after program completion will be compared to earnings of working adults with only a high school diploma or GED. - For graduate programs, median earnings 4 years post-enrollment will be compared to earnings of adults with only a bachelor's degree.
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### 4. Deferment and Forbearance
- There are no major reforms to deferment or forbearance options in the bill.
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### 5. 529 Education Savings Plans
- No changes to 529 Education Savings Plans have been reported in the bill.
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**In conclusion, the new law substantially tightens borrowing limits for graduate and Parent PLUS loans, expands and restricts Pell Grant eligibility criteria, and introduces new outcomes-based accountability measures for schools. These reforms aim to better align federal aid with educational and labor market outcomes but may create challenges for some borrowers and institutions.**
- The bill will end or phase out several current repayment plans. - Parents of undergraduate students will still be able to borrow up to $20,000 a year beginning in July 2026, with a total cap of $65,000 per student. - New student loan borrowers will have two payment options: the Standard Repayment Plan with fixed payments over a 10-to-25 year period, or the Repayment Assistance Plan (RAP) with payments of 1 to 10 percent of adjusted gross incomes over a 30-year repayment period. - The bill does not change the annual and aggregate loan levels for both dependent and independent undergraduate students. - Parents of undergraduate students can borrow up to $20,000 a year beginning in July 2026, with a total cap of $65,000 per student. - Students who attend certain vocational or job-training programs will be eligible for Pell Grants. - The bill broadens qualified expenses for grade, middle, and high school students to include standardized testing fees and tutoring. - The Grad Plus Loan program for graduate students has been eliminated, and beginning in July 2026, graduate students will have different lifetime borrowing limits based on their degree program. - The bill affects changes in various areas, including tax rates, Medicaid, immigration, and border security.
Sources: [1] https://www.ed.gov/news/press-releases/education-department-announces-historic-investment-pell-grant-program [2] https://www.ed.gov/news/press-releases/education-department-announces-expansion-pell-grants-short-term-workforce-training-programs [3] https://www.insidehighered.com/quicktakes/2021/07/16/new-law-eliminates-grad-plus-loans-expands-pell-grants-and-sets-new [4] https://www.insidehighered.com/news/2021/03/23/house-democrats-propose-eliminating-grad-plus-loans-and-expanding-pell-grants
- The Grad PLUS loan program, previously available for graduate and professional students, will be eliminated starting July 1, 2026, necessitating a shift to Direct Unsubsidized Loans for future borrowers.
- Apart from federal finance and tax changes, the educational landscape will see shifts in art subsidies as Pell Grant eligibility now includes foreign income and restricts students with a Student Aid Index exceeding twice the maximum Pell Grant award.
- With the new law, style and self-development opportunities may become more accessible as the bill expands Pell Grants to students enrolled in short-term workforce training programs, provided they align with local labor market demands.
