Last year’s enactment of the “One Big Beautiful Bill Act” (OBBBA) included significant changes to the federal student loan system. New borrowers will be impacted starting July 1, 2026, while current borrowers will see shifts into new plans by July 1, 2028. There are four areas where these changes will be implemented.
The federal GRAD Plus program will be eliminated for new students. Historically, this program enabled students to borrow up to the full cost of attendance with federal loans. While private lenders could step in, their repayment terms, including forgiveness provisions, will likely be less favorable to borrowers. It is anticipated that interest rates will also be higher.
In an attempt to offset this change, Stafford Loan limits will increase. Caps for professional graduate students, such as lawyers, will increase from $20,500 to $50,000 annually. The lifetime cap is $200,000, which does not include any undergraduate loans. However, since there is no language for these limits and the cap to adjust for inflation, as higher education costs continue to increase, the limits will remain stagnant, causing additional burdens for those who do not have other means to pay for professional graduate school costs.
OBBBA also sets new caps on the federal loans that parents can borrow to pay for their child’s undergraduate education, known as Parent PLUS loans. Effective July 1, 2026, new parent borrowers will be prohibited from borrowing more than $20,000 per year and $65,000 total per child. Previously, Parent PLUS loan borrowers could borrow up to the total cost of attendance of their child’s education, less any other financial aid received.
OBBBA also created the Repayment Assistance Plan (RAP). The RAP serves to consolidate several income-driven repayment plans (SAVE, PAYE and income-contingent repayment). One positive aspect of RAP is that borrowers will see their balances decrease each month. If borrowers’ monthly payments do not cover the accruing interest, the unpaid portion will be waived. Borrowers in this program will also remain eligible for the Public Student Loan Forgiveness program (PSLF), which was intended to benefit students working in public service. A negative aspect of RAP is that payments will now be based on borrowers’ adjusted gross income, as opposed to discretionary income. For borrowers who previously qualified under SAVE, borrowers were eligible for loan cancellation after 10 years. RAP now requires 30 years of payments before one is eligible for loan cancellation.
In addition, OBBBA includes provisions for a revised standard repayment plan. It allows for more flexibility through the use of tiered schedules and choosing payments based on how much is borrowed or how much is earned. This is a departure from the fixed-payment 10-year plan. However, it is anticipated that most, if not all, borrowers would no longer be eligible for PSLF.
In 2007, Congress established the PSLF program to encourage individuals to pursue public service by promising to forgive their remaining federal student loans after 10 years of qualifying employment and 120 qualifying payments. However, the Trump administration believed that eligibility standards for what constituted a qualifying public service employer were not adequately monitored and allowing certain organizations to qualify (despite engaging in what the administration considered illegal activities) harmed their communities and the public good. The final rule issued by the U.S. Department of Education (ED) on October 31, 2025, and in effect July 1, 2026, amends the definition of “qualifying employer” to exclude organizations that engage in unlawful activities such that they have a substantial illegal purpose, including supporting terrorism and aiding and abetting illegal immigration. At issue here is the fact that the ED rule fails (whether intentionally or not) to define prohibited conduct. It also includes activities that are legal but perhaps contrary to administration policy.
Borrowers will also have fewer protections if they experience financial challenges and fall behind with payments. Borrowers who take on new loans after July 1, 2027, will no longer be able to access unemployment and economic hardship deferments. These deferments enabled borrowers to pause their payments for up to three years. OBBBA also limits the amount of time a borrower can be in a forbearance to no more than nine months in any two-year period.
All of this begs the question of what impact OBBBA will actually have on student loan repayment. It has been estimated that total student loan debt has increased to over $1.6 trillion, and there are approximately five million borrowers in default. However, the American Enterprise Institute has estimated that an additional six million borrowers will be delinquent next year. Adding to this number is the fact that the Trump administration has promised to seize borrowers’ earnings.
However, there is one portion of OBBBA that may have the single largest impact. Under the American Rescue Plan Act, signed into law by President Biden in 2021, Congress excluded cancelled student loan debt from being considered income for federal tax purposes until December 31, 2025. Many states acted to ensure that borrowers would not be hit with a state tax bill on cancelled debt for the same time period. However, OBBBA failed to extend this federal tax protection for borrowers, with the exception of cancellation due to death or disability. As a result, borrowers reaching cancellation under any income-driven repayment plan after January 1, 2026, could now be hit with a massive federal tax bill.
The general intent of OBBBA was to reduce overall debt burdens and reform lending practices for education. However, there are growing concerns that the practical effect will be to limit students from accessing educational opportunities unless costs can also somehow be independently financed. Increasing educational costs, coupled with limits in lending, will impact both middle- and lower-income families. Ramping up debt collection with wage garnishment will put more pressure on household finances that are already impacted by increased housing and grocery prices. Borrowers (and their families) who are hit with large federal tax bills as a result of qualifying for cancellations will face additional financial burdens. Ultimately, will OBBBA actually accomplish its general intent, or will it instead serve to prevent or discourage lower- and middle-income individuals from accessing affordable higher education?
