The “One Big Beautiful Bill” (OBBB) has passed, and after several iterations have been made public, the bill implements sweeping tax changes. The final version will also affect both current and future students. 

Regulations to implement the law will still need to be crafted and could take months before they are actionable. As such, many of the provisions that affect student loan borrowers will be phased in over a year or more.  This document will summarize the changes included in the new law.

The full text of the law can be found here. (opens new link)

Effects on Future Borrowing

Graduate PLUS loans: The Law eliminates the Graduate PLUS program, effective July 1, 2026, with legacy provisions for current borrowers to complete their program of study.

Graduate loan limits: For students in graduate or professional studies, effective July 1, 2026, the law caps the annual graduate loan limits at $20,500 for graduate students and $50,000 for professional students. The aggregate loan limit is capped at $100,000 for graduate students and $200,000 for professional students.

Lifetime borrowing cap on all federal loans: The law contains a $257,500 borrowing cap on all federal student loans, excluding borrowed Parent PLUS loan amounts.

Annual, aggregate, and lifetime loan limits effective date: Loan limits take effect on July 1, 2026, with a legacy provision allowing current borrowers to continue borrowing under current limits for the remainder of their expected time to credential.

Institutionally determined loan limits: The law includes a provision that allows institutions to impose their own program-level loan limits, which take effect on July 1, 2026.

Parent Borrowing Limits: The bill limits parents to borrowing $20,000 per year for each child, with a total cap of $65,000 per student.

Loan proration for less-than-full-time enrollment: The law requires institutions to prorate annual loan amounts in direct proportion to the percentage of full-time enrollment.

Institutional Accountability Measures: For undergraduate programs, the provision compares the median earnings of completers four years after program completion with the earnings of “working adults” who have only a high school degree or GED and are not enrolled in higher education. For graduate programs, it compares the median earnings four years post-enrollment with the earnings of “working adults” with only a bachelor’s degree who are not enrolled in higher education.   

Programs failing to meet this earnings threshold in two of the three years will lose eligibility to participate in the Direct Loan Program, with the option to reapply after two years. After one year of failure, institutions will have to provide disclosures to students. This measure will take effect on July 1, 2026. 

Effects on Existing Student Borrowers

Repayment Plan options for Current Borrowers: Borrowers with no new loans made on or after July 1, 2026, can continue to be eligible to enroll in the current Standard, current Income-Based (IBR), Graduated, and Extended repayment plans, and could also opt in to the new RAP. They can also choose the PAYE and ICR plans until July 1, 2026.  Borrowers enrolled in ICR, PAYE, or SAVE after July 1, 2026, must transition to a new repayment plan (IBR) by July 1, 2028. If no selection is made, then they will be moved to the RAP plan.

Changes to Income-Based Repayment (IBR): The law removes the requirement for borrowers to demonstrate a partial financial hardship to enroll in IBR. Additionally, the law retains cancellation for balances of loans repaid under IBR at 25 years.  While previous versions of the bill aimed to eliminate the IBR for new borrowers (effective July 2014), this provision, with a 10% of income and 20-year maximum repayment period, remains in effect for those who had no loan balance on July 1, 2014, and no loans after July 1, 2025.

Borrowers in the SAVE Forbearance: The law requires borrowers in the SAVE forbearance to transition to an eligible repayment plan by July 1, 2028. Those who do not change plans will be moved to the RAP plan.  If they have loans ineligible for the RAP plan (Parent Borrowers), they will be transferred to the Income-Based Repayment Plan. 

**Special Note:  As of Aug 1, 2025, borrowers in the SAVE forbearance will no longer have 0% interest per ED’s announcement on 7/9/2025

Effects on Student Borrowers after July 1, 2026

Repayment Plan Options for New Borrowers: Borrowers with new loans made on or after July 1, 2026, can be repaid using only two plans: a new standard repayment plan with fixed monthly payments and fixed terms ranging from 10 to 25 years, based on the amount borrowed and the new income-based repayment plan, RAP.  The RAP plan is not expected to be available for enrollment until July 1, 2026.

Repayment Assistance Plan monthly payments calculation: Borrowers who either don’t have an Adjusted Gross Income (AGI) or whose AGI doesn’t reasonably reflect the borrower’s current income are required to provide the Department of Education (ED) with documentation to calculate their monthly payments.

Repayment Assistance Plan monthly payment amount: The law requires a $10 minimum monthly payment under RAP, and a borrower’s RAP monthly payment will be based on their AGI and number of dependents. Income and dependents are calculated separately for married borrowers who filed taxes separately from their spouses.

Effects on existing Parent Borrowers

Parent Borrowers who do not take out loans after July 1, 2026: Parent borrowers who do not have any loans issued after July 1, 2026, are still able to consolidate their loans and enroll in the ICR.  When the ICR plan sunsets, borrowers will be transitioned to the IBR plan.

Parent borrowers who begin or continue to take out federal loans after July 1, 2026: Parent borrowers who take out any loans after July 1, 2026, are not eligible for ANY IDR plan.  

Parent borrowers who are NOT in an IDR plan by July 1, 2026: Parents who do not consolidate their loans and enroll in ICR before July 1, 2026, will not be eligible for the transition to IBR and will not qualify for any IDR plan after July 1, 2026. 

Proposals that did NOT make it into the final bill

Student eligibility: Previous versions of the bill proposed cutting Title IV eligibility for students who belong in specific non-citizen categories. This provision was removed after the Senate parliamentarian ruled that it did not abide by the Byrd Rule. Consequently, the law does not include any of these changes to student eligibility.

Median cost of college: An earlier version of the bill included a provision regarding changing the calculation of a student’s need as the median cost of college (MCOC) minus the Student Aid Index (SAI) minus other financial aid. The law does not include this provision, since it was stripped out by the Senate. 

Subsidized loans: An earlier version of the bill sought to eliminate subsidized loans for undergraduate students. The law does not include this provision, and undergraduate students would retain eligibility to receive subsidized loans.

Parent PLUS loans: An earlier version of the bill proposed that parents could only borrow if their dependent student has already taken out their maximum annual unsubsidized loan amount.

Undergraduate loan limits: The law does not include any changes to undergraduate loan limits and maintains the current limits for annual and aggregate borrowing.

Repayment Assistance Plan (RAP) terms:. A provision from an earlier version would not allow borrowers to switch from RAP to the standard repayment plan once enrolled in RAP. The law does not include this limitation.

Income-Based Repayment (IBR) plan changes: An earlier version of the bill proposed removing the cap on monthly payments made under the IBR plan, limiting them to no more than the borrower would have paid under the Standard 10-year repayment plan. However, the law retains the cap.

Public Service Loan Forgiveness (PSLF): An earlier version of the bill excluded time spent in a medical or dental internship or residency program from counting towards Public Service Loan Forgiveness (PSLF). The law does not include this provision, meaning time spent in a medical or dental internship or residency program does count toward PSLF.

Analysis

The changes included in the OBBB will drastically reduce the federal government’s involvement in funding higher education.  For current student borrowers, the sunsetting of ICR plans will be highly troubling. 

Since 2011, students have enrolled in school and funded their education with federal student loans with the promise that under the Pay As You Earn plan, they would pay no more than 10% of their income for 20 years. 

The OBBB effectively pulls the rug out from under these borrowers, forcing them into options that will increase their payments and tack on 5-10 additional years before they complete their repayment obligation. 

• Borrowers currently in PAYE who are new borrowers as of July 1, 2014, will be exempt from this change, as they will be able to maintain similar repayment terms under IBR as they had in PAYE.

• Borrowers in the SAVE forbearance or ICR plans will need to evaluate the benefits of the IBR plan versus the new RAP plan by July 2028; otherwise, they will be automatically transferred to the RAP plan.

• Additionally, current Parent borrowers who want to benefit from PSLF or an IDR plan will need to quickly consolidate their loans and enter an ICR plan before July 2026, and then wait for the transition into IBR by July 2028.  

For current students, they will need to weigh the costs of taking out federal loans after July 1, 2026, and the impact that might have on their ability to repay their current loans under the IBR plan vs the RAP plan. 

While the new loan limits don’t affect those who have already begun a course of study, taking additional federal loans out after July 1, 2026, would limit their repayment options to just RAP and the new standard repayment plan, which are far less favorable than the new IBR plan.

New students face a new world of financial aid.  One in which the federal government will play a significantly smaller role.  While undergraduate loan limits remain the same, they were already well below the requirements needed to fund a bachelor’s degree. 

The newly instituted Parent Plus limits, coupled with restricted access to IDR plans, could mean that more families have to look beyond federal loans for their education costs. This is likely to mean private loans with a significantly higher price tag, potentially pricing some families out of higher education or condemning them to a life of debt to fund their educations.

How the future looks for future graduate & professional students

Future graduate and professional students will be facing a very different reality when it comes to paying for their advanced degrees than past generations. 

• The annual loan limits under the OBBB will mean most graduate and professional studies will not be affordable on federal loans alone.  More graduate students will need private student loans to subsidize their educational costs.  The longer repayment term of RAP, higher required payments, the lack of a payment cap, and limited access to federal funds will make the RAP plan less attractive to higher-earning individuals. 

For example, a 4-year Doctor of Dental Surgery program at a private college can currently cost as much as $120,000 per year, including living expenses. 

Under the current loan limits, less than half of the costs would be eligible for borrowing from the federal government and for the new RAP plan.  With half the cost of education coming from private loans that currently have rates as high as 15% and many that require co-signers, the cost of obtaining a graduate or professional degree will significantly impair the borrower’s financial situation for decades into their career.

With a 30-year repayment term, it’s doubtful that the RAP plan provides much, if any, benefit to the professional students when in repayment.  The net result is likely that future students will finance more, or all, of their education from private lenders.   It’s also quite possible there would be fewer students willing to finance their education at the higher interest rates associated with private loans, leading to reduced enrollment, closure of schools, and eventually a shortage of professionals to serve the community.