Student Loan Changes in the One Big Beautiful Bill: What Borrowers Need To Know

Congress recently passed the sweeping One Big Beautiful Bill Act, significantly altering the landscape of federal student loans. Signed into law on July 4, 2025, this act introduces numerous changes that impact borrowers immediately and into the coming years.

Here’s a comprehensive breakdown of the critical changes and what they mean for you.

Quick Highlights

Borrowing limits tighten

Graduate students will feel significant effects beginning July 1, 2026, when the Grad PLUS program ends. The annual borrowing limit will be reduced to $20,500 for most graduate programs, with a $100,000 lifetime cap.

Professional-degree students (e.g., medical, law) will have a higher borrowing limit of $50,000 per year, with a $200,000 lifetime cap.

Those enrolled in graduate programs before July 2026 can continue Grad PLUS loans for up to three additional years, but new students should plan accordingly.

Parents borrowing under the Parent PLUS loan program also face new restrictions. Starting July 1, 2026, Parent PLUS loans will be limited to $20,000 per year and a $65,000 lifetime cap.

Additionally, after this date, Parent PLUS borrowers will no longer be able to enroll newly disbursed loans into income-driven repayment (IDR) plans; instead, they will be restricted to the standard 10-year repayment plan. Borrowers who take out a single new Parent PLUS loan after July 1, 2026, make all prior Parent PLUS loans ineligible for income-driven repayment.

Existing Parent PLUS borrowers should consider consolidating and enrolling in IDR before July 2026 to avoid losing flexibility if future borrowing is necessary.

Repayment plans overhauled

Several existing IDR plans, including SAVE, PAYE, and ICR, will sunset on or around July 1, 2026. Borrowers currently using these plans must transition to either the modified Income-Based Repayment (IBR) or the newly introduced Repayment Assistance Plan (RAP).

RAP calculates monthly payments based on adjusted gross income (AGI) and family size, with forgiveness after 30 years of qualifying payments, longer than the current 20–25 year timelines under other IDR plans.

Importantly, the “partial-financial-hardship” test that previously restricted IBR enrollment was eliminated immediately as of July 4, 2025, expanding access to borrowers previously unable to qualify.

Borrowers currently on sunsetted plans should consider proactively moving to modified IBR or RAP before the automatic transition occurs on July 1, 2028. Being proactive ensures borrowers select the plan that is best aligned with their financial situations and repayment goals.

Any loan funds first disbursed on or after July 1, 2026, whether you’re a brand-new borrower or adding to existing debt, can only enter the standard 10–25 year repayment plan or the new Repayment Assistance Plan (RAP). Funds borrowed before that date remain in your current plan (including SAVE, PAYE, or ICR) until the broader IDR sunset on July 1, 2028.

Workforce Pell Grants expanded

Beginning with the 2026–27 academic year, Workforce Pell Grants will be available to students enrolled in credential programs lasting fewer than 15 weeks. These grants, currently worth up to $7,395, cover eligible training programs such as HVAC certification or coding bootcamps, but explicitly exclude study-abroad or English-language courses.

This expansion aims to support career development and fill critical workforce gaps by providing financial assistance for short-term training. It is an excellent opportunity for students pursuing non-traditional educational paths to secure previously unavailable funding.

Importantly, Pell Grant eligibility remains available to part-time (half-time) students, despite earlier discussions of restricting eligibility to full-time students.

Limited relief options

New loans disbursed after July 1, 2027, will no longer offer unemployment and economic-hardship deferments. Also, forbearance options will be limited to nine months within any 24-month period, reducing the previously available three-year renewable cap. Borrowers must proactively manage finances or enroll in IDR options like RAP or modified IBR to safeguard against unexpected financial hardships.

This tightening of relief options underscores the importance of proactive financial planning and building robust emergency savings. Borrowers should anticipate potential financial strain and strategize accordingly.

Borrower protection rollbacks

The act postpones Biden-era borrower defense and closed-school discharge rules and reverts to the narrower 2020 criteria for loans issued before July 1, 2035. Borrowers planning to seek loan relief should know that older, stricter rules now apply, potentially limiting relief eligibility.

These rollbacks represent a significant shift, so borrowers should promptly reassess their eligibility under these reinstated regulations to determine how their situation may be impacted.

Second-chance loan rehabilitation

Starting July 1, 2027, borrowers who default on federal loans more than once will regain the option to rehabilitate loans, a crucial second chance previously unavailable. This offers critical relief and renewed flexibility for struggling borrowers.

FAFSA asset exclusion changes

Beginning with the FAFSA application for the 2026–27 academic year, the net worth of family farms, small businesses, and fisheries will no longer be considered in financial aid eligibility calculations. This change could substantially increase federal aid eligibility for dependent students from these backgrounds.

Key steps for borrowers

• Graduate students: Plan proactively, especially if enrolled beyond June 2026. Investigate private loan options to bridge new borrowing limits.
• Parents: Consolidate existing Parent PLUS loans into IDR before July 2026 to maintain repayment flexibility.
• Current borrowers: Consider transitioning to IBR before July 2026 or facing automatic migration to RAP.
• Public-service employees: Monitor RAP implementation closely to ensure continued PSLF eligibility.
• New borrowers: Strengthen your financial emergency plans given new limits on deferment and forbearance.
• Families owning farms/small businesses: Reassess FAFSA eligibility ahead of the 2026-27 cycle to leverage new asset exclusion rules.

Proactively navigating these shifts can ensure maximum flexibility and financial well-being under the new student loan landscape.