6 Ways the One Big Beautiful Bill Will Impact College Students and Federal Student Loan Borrowers

President Trump signed his sweeping “One Big Beautiful Bill” (OBBB) into law on July 4, 2025. The massive bill has significant implications for incoming and current college students, as well as existing federal student loan borrowers. Here are six of the biggest higher education-related changes in the bill:

The Impact of the One Big Beautiful Bill on Incoming and Current College Students

Whether you’re the parent of a high schooler preparing for college or are currently in school yourself, the OBBB makes some changes to federal financial aid:

Students Can Use Pell Grants for Non-Degree Programs

Pell Grants are a form of gift aid — meaning they don’t have to be repaid — specifically designed for low-income undergraduate students. But, the OBBB made one major change: starting July 1, 2026, students can use Pell Grants for short-term work training programs, such as electrician or forklift certification courses.

Parents Will Have Loan Limits

Under the current loan system, parents of undergraduate students can use Parent PLUS Loans — a type of federal student loan — to borrow money to pay for their child’s education. Parents can borrow up to 100% of the total cost of attendance for each of their children.

Under the OBBB, parent borrowing will be restricted. For the academic year beginning July 1, 2026, parents will be limited to $20,000 per year per student, with an aggregate or lifetime limit of $65,000.

Graduate Students Options And Loan Limits

With the existing federal loan system, graduate and professional students can use Direct Unsubsidized Loans and Grad PLUS Loans to pay for their programs. Direct Unsubsidized Loans have lower rates, but there are caps on how much students can borrow per year and over their lifetime. Grad PLUS Loans have higher interest rates than Direct Loans, but they aren’t subject to borrowing limits.

However, the OBBB eliminates Grad PLUS Loans, so the only federal loan option for graduate or professional students after July 1, 2026 is Direct Unsubsidized Loans. And, these loans will have loan limits:

• Graduate students: $20,500 per year (Aggregate limit of $100,000)
• Professional students: $50,000 per year (Aggregate limit of $200,000, in addition to the amount borrowed for undergraduate eduction)

For students in programs that tend to be expensive, such as medical school or law school, the new limit may not cover the total cost of attendance, so they’ll need other financing, like private student loans.

The Impact of the OBBB on Existing Student Loan Borrowers

How parents and future students pay for college will change due to the OBBB, but there are also changes that will affect current student loan borrowers:

You May Need to Switch Repayment Plans

Previously, there were four income-driven repayment (IDR) plans that based borrowers’ monthly payments on their discretionary income:

• Income-Based Repayment (IBR)
• Income-Contingent Repayment (REPAYE)
• Pay As You Earn (PAYE)
• Saving on a Valuable Education (SAVE)

The OBBB eliminates those options. Going forward, there will be just two options: the new Repayment Assistance Plan, and standard repayment plan (which will have a repayment term between 10 and 25 years, depending on your loan principal). The standard repayment plan will assign terms as outlined below:

• Outstanding principal under $25,000: 10 years
• Outstanding principal between $25,000 and $49,999: 15 years
• Outstanding principal between $50,000 and $$99,999: 20 years
• Outstanding principal of $100,000 or more: 25 years

For new federal loans taken out on or after July 1, 2026, those are the only two options. Those with existing student loans have a little more time on their current plans, but all borrowers must choose either standard repayment, or the new Repayment Assistance Plan, by July 1, 2028.

You’re No Longer Eligible for Unemployment or Financial Hardship Deferments

One of the hallmarks of the federal loan program was the protections it gave borrowers, particularly those facing financial challenges. With federal student loans, borrowers could pause their payments if they lost their jobs or faced financial hardships through unemployment or financial hardship deferment. However, the OBBB ends those programs; borrowers who take out loans on or after July 1, 2027, are not eligible for these forms of deferment.

You Can Take Advantage of Loan Rehabilitation Twice

Defaulting on your federal student loans can have serious consequences, including wage garnishment and treasury offset (meaning the government can seize your tax refund and other benefits to repay your outstanding debt).

Loan rehabilitation is a pathway to getting your loans out of default. Currently, borrowers can only use the loan rehabilitation process once. However, the OBBB gives some relief to borrowers, increasing the maximum limit to two, making it easier for those in default to bring their loans current.

What Didn’t Change

Previous iterations of the OBBB have several other changes that would’ve significantly affected current and future students. However, these proposals were eliminated from the final bill:

• Changes to Public Service Loan Forgiveness: Under Public Service Loan Forgiveness (PSLF), borrowers can qualify for loan forgiveness if they make 120 monthly payments and work for a qualifying non-profit organization for 10 years. Previous iterations of the bill did not count medical or dental residencies as qualifying employment, making it harder for doctors and dentists to qualify for loan forgiveness.
• Pell grant enrollment requirement: The previous iterations required students to be enrolled for at least 30 credit hours per academic year to qualify for Pell Grants, making it harder for students enrolled half-time or part-time to qualify for aid.

Looking Ahead for Financial Aid

The OBBB makes substantial changes to federal student loan borrowing limits, and repayment options. However, most of the changes go into effect over a staggered time-frame — one to three years — so you have some time to figure out alternative financing or repayment options in the meantime.

For example: for those in college or graduate school. Private student loans or private parent student loans can help cover the remaining balance left by the new borrowing limits, and student loan refinancing could be a good option for those with loans in repayment.

College Ave is here to help you navigate these changes. With expert insights and flexible loan options, we understand new policies may affect your funding strategy and repayment plans. Whether you’re a student or a parent, we’re here to support your success every step of the way.