10 ways Trump's budget bill affects student loans and financial aid

Yahoo

3 days ago

When it comes to paying for college, the federal government is one of the main providers of financial aid and support. In fact, the National Center for Education Statistics reported that 87% of undergraduate students received some form of federal financial aid, including federal grants or federal student loans.
The prevalence of federal financial aid is why the One Big Beautiful Bill (OBBB) — President Trump's sweeping bill that he signed into law in July — is such an important piece of legislation. The OBBB made many changes to federal financial aid that will affect both new and existing students and student loan borrowers.
The impact of the OBBB on current and incoming college students
Most of the OBBB's changes will go into effect on or after July 1, 2026. Whether you're currently in college or will be enrolling next year, here's how the OBBB may affect you.
1. You can use Pell Grants for work training programs
Pell Grants are a form of federal gift aid for low-income students. Previously, you could only use Pell Grants to pay for degree-granting programs, but the OBBB changed that requirement. Now, students can use Pell Grants to pay for qualifying work training or certificate programs too.
2. It changes the loan limits for part-time students
The OBBB institutes new limits for part-time students. Going forward, the maximum a student can borrow will be reduced based on their enrollment status. However, how much it will be reduced and what maximums will apply have yet to be finalized. The Department of Education is developing these limits and will submit them for public comment later this year.
3. Graduate students are no longer eligible for PLUS Loans
Currently, graduate and professional students can use both Direct Unsubsidized and Grad PLUS Loans to pay for their education. But, the OBBB ends the Grad PLUS Loan program, so they'll no longer be available as of July 1, 2026.
Graduate students will still be able to borrow Direct Unsubsidized Loans after that time.
4. New borrowing limits apply to some federal loans
One perk of Parent PLUS and Grad PLUS Loans was the ability to borrow up to 100% of the total cost of attendance. However, the OBBB set new annual and aggregate borrowing limits.
For parents taking out Parent PLUS Loans to pay for a child's undergraduate education, the limit is $20,000 per year per student, with an aggregate maximum of $65,000.
For graduate students, such as those studying for master's degrees, the maximum loan amount is $20,500 per year. An aggregate limit of $100,000 applies.
For professional students, such as those studying for Juris Doctor (JD) and Doctor of Medicine (MD) degrees, the maximum loan amount is $50,000 per year. An aggregate limit of $200,000 applies.
These new borrowing caps could leave some students with funding gaps, forcing them to seek alternative aid elsewhere.
OBBB changes affecting student loan borrowers
It's not just current or incoming college students that are affected by the OBBB; the bill also made changes that will affect the 43 million people who have outstanding federal student loans.
1. Most repayment plans end
Currently, borrowers who cannot afford the payments under a 10-year standard repayment plan can choose from several income-driven repayment (IDR) plans, which set your payments at a percentage of your discretionary income for 20 or 25 years of repayment. After completing the required payments, any remaining amount could be forgiven.
The OBBB ended these repayment plans, so existing borrowers will be transitioned out of these plans by July 1, 2028, and new borrowers won't have access to IDR plans at all. Borrowers with loans made before July 1, 2026, will still be eligible for an updated version of the Income-Based Repayment plan.
2. A new payment plan is available
With the elimination of the existing IDR plans, borrowers will have just two options in the future: a standard repayment plan and the new Repayment Assistance Plan (RAP). The RAP extends the maximum repayment term to 30 years, and many borrowers will have a higher monthly payment under RAP than they would under the current IDR plans.
3. Parents will no longer qualify for Public Service Loan Forgiveness
After July 1, 2026, parent borrowers will no longer be able to enroll in an existing IDR plan, and they won't be eligible for the new RAP. As a result, the only payment option is standard repayment.
With a standard repayment plan, the loans are paid off in 10 years, so parents will no longer be able to take advantage of loan forgiveness under Public Service Loan Forgiveness (PSLF).
4. Borrowers won't be able to use certain deferments or forbearance programs
The OBBB ends deferments related to unemployment or financial hardships, so borrowers who lose their jobs or cannot afford their payments will have fewer options for relief.
5. Loan rehabilitation is available twice
Under the current loan system, federal student loan borrowers can only take advantage of loan rehabilitation — a process to bring their loans current — once. However, the OBBB allows borrowers to rehabilitate their loans twice, giving borrowers another chance to get their loans on track.
6. Tax breaks for permanent disability discharge are extended
The OBBB extended the tax break that exempts student loans discharged through total and permanent disability discharge from federal income taxes. For borrowers who become disabled, this change provides relief from an unexpected tax bill.
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What to do if you currently have federal student loans
If you applied for the Saving on a Valuable Education (SAVE) plan, the OBBB officially ends that option. Interest has begun accruing on SAVE borrowers' loans, and borrowers are encouraged to enroll in a new payment plan. If you want to make progress toward loan forgiveness, you'll need to enroll in a new plan as soon as possible; you can apply for a new plan online at StudentAid.gov/idr/.
For PLUS Loan borrowers, consider consolidating your loans with a Direct Consolidation Loan so you can enroll in one of the current IDR plans. If you do so, you'll retain eligibility for alternative repayment plans and loan forgiveness. Otherwise, PLUS Loan will only have the standard repayment option.
Contact your loan servicer to discuss any changes to your repayment plans and what options are available.