The One Big Beautiful Bill Act, signed into law by President Trump in 2025, introduces significant changes to the federal student loan system that affect how students and parents finance higher education. Effective July 1, 2026, new borrowers will face revised borrowing limits. For undergraduate students, annual borrowing limits for Federal Direct Subsidized and Unsubsidized Student Loans remain unchanged, but the Parent PLUS Loan borrowers will be restricted to borrowing a maximum of $20,000 per academic year per student, with a lifetime cap of $65,000 per student. Graduate students will see the discontinuation of the Graduate PLUS loan program, which previously allowed borrowing up to the full cost of attendance; it will no longer be available for new borrowers starting their programs after July 1, 2026. The new law also imposes a lifetime borrowing limit of $100,000 for Federal Direct Unsubsidized Student Loans for graduate students, with a higher cap of $50,000 per academic year and $200,000 lifetime for those pursuing professional degrees like medical or law degrees. Across all federal student loans, a lifetime borrowing cap of $257,500 is introduced, excluding Parent PLUS loans.
The bill also reshapes repayment options by phasing out many existing income-driven repayment plans such as PAYE and SAVE by July 1, 2028. In their place, it introduces a new income-driven repayment plan called the Repayment Assistance Plan (RAP), which mandates a minimum monthly payment of $10 regardless of income or family size. Payments under RAP are calculated as a percentage of the borrower's income, adjusted for dependents, and any unpaid interest is waived. However, RAP provides loan forgiveness only after 30 years of qualifying payments, longer than previous plans. The standard repayment plan has been overhauled as well, shifting from a fixed 10-year term to a tiered repayment timeline based on the size of the borrower's debt, allowing up to 25 years for larger balances. Borrowers taking out loans on or after July 1, 2026, will be limited to only the new standard repayment plan or the RAP plan, reducing their repayment options significantly.
Current borrowers with loans disbursed before July 1, 2026, have until July 1, 2028, to transition from older repayment plans to the new options, but after that date, the majority of previous repayment options will be eliminated. The bill also includes provisions to limit access to federal student loans for programs with poor graduate earning outcomes, tying institutions' access to federal aid to their graduates' earnings relative to high school diploma holders. Pell Grant eligibility is also adjusted, excluding those with full scholarships starting July 2026 while expanding support for job-training programs through community colleges.
Overall, these changes impose tighter borrowing limits, restrict repayment options, and create a more stringent federal student aid environment aiming to address affordability and accountability but also increasing challenges for borrowers, especially those with low incomes or attending higher-cost professional programs.
