How Trump’s 'Big Beautiful Bill' Reshapes Federal Student Aid and What It Means for You

A massive overhaul of the federal student aid system is set to transform how Americans finance their college education. With President Donald Trump's “One, Big, Beautiful Bill” now enacted as law, sweeping changes to repayment plans, forgiveness programs, loan limits, Pell Grant eligibility, and other government education assistance are on the horizon.

The new law touches nearly every aspect of federal student aid, affecting undergraduate and graduate students, parents who borrow on behalf of their children, as well as the schools that participate in federal aid programs. The changes were part of a broader budget reconciliation bill that just barely passed Congress along partisan lines.

Supporters argue the reforms streamline a bloated financial aid system, curb overborrowing, and make colleges more accountable. Opponents warn that the changes could make higher education less accessible, especially for low-income students and those pursuing advanced degrees.

Ultimately, the new law is likely to change students' relationships with federal student loans, says higher education financing expert Mark Kantrowitz.

“There are still some advantages of federal student loans, such as the cancer deferment, Teacher Loan Forgiveness, and Public Service Loan Forgiveness, but not as many as before,” Kantrowitz says. “More borrowers with excellent credit, who qualify for the lowest interest rates on federal student loans, may choose to obtain private student loans instead of federal student loans.”

Here's a summary of federal student aid changes that have been enacted:

New repayment plan structure

All federal student loans disbursed on or after July 1, 2026, will be eligible for only one standard repayment plan and a single income-based repayment plan that will be called the Repayment Assistance Plan.

• Standard Repayment Plan: Under this plan, the length of the repayment term is determined by the total amount a student borrowed:
  • Less than $25,000: 10 years
  • $25,000 to $49,999: 15 years
  • $50,000 to $99,999: 20 years
  • $100,000 or more: 25 years
• Repayment Assistance Plan: This plan has an interest subsidy. When you make on-time payments that don't cover the total interest that accrued for the month, you won't be charged the difference. In addition, for each month you make an on-time payment that reduces your outstanding principal balance by less than $50, your total outstanding principal will be reduced by the lesser of $50 or the total amount you paid for the month.

Federal student loan borrowers currently have several repayment options.

The Standard Repayment Plan features fixed payments over 10 years. The Graduated Plan starts with lower payments that increase every two years, while the Extended Plan allows repayment over as many as 25 years for borrowers with more than $30,000 in loans.

There are also four income-driven repayment (IDR) plans that adjust monthly federal student loan payments based on your income and family size. Most offer eventual loan forgiveness after 20 to 25 years. These will be phased out over time, and by July 2028, all participants will need to migrate to the new income-based plan.

Loan forgiveness changes

Payments made under the Repayment Assistance Plan can count as qualifying payments toward Public Service Loan Forgiveness (PSLF). However, time served in a dental or medical residency or internship does not count as a public service job for borrowers who have not taken out a Direct PLUS Loan or a Direct Unsubsidized Loan as of June 30, 2025.

Student loan eligibility

The new law changes the eligibility requirements for federal student aid:

• Citizenship: The law changes citizenship categories that are eligible for student aid, specifically certain Cuban nationals and residents in the U.S. from the Federated States of Micronesia, the Republic of Palau, or the Republic of the Marshall Islands.
• Need-based aid: The new calculation for eligibility for need-based aid is based on the median cost of attendance by program of study from all institutions of higher education, rather than the cost of attendance of a student's specific program as determined by their school.
• Exemption for certain farms and small businesses: There is now an exemption for specific family farms in the Free Application for Federal Student Aid (FAFSA) based on the net worth of a family farm in which the family resides. An exemption was also added for a small business owned and controlled by the family with no more than 100 full-time employees.

Deferment and default policies

The Department of Education previously offered multiple deferment options if students needed to pause payments due to financial hardship or other qualifying reasons. For loans disbursed on or after July 1, 2026, the law eliminates all deferments for economic hardship or unemployment.

In addition, the bill reduces the amount of time a borrower can be in forbearance. Borrowers who are serving in a dental or medical residency or internship program can become eligible for a forbearance during which no interest accrues for the first four 12-month intervals. For subsequent 12-month intervals, interest will accrue.

Finally, the law changes the terms of rehabilitation for defaulted loans. While borrowers could previously only rehabilitate their loans once, they can now rehabilitate twice. But starting in July 2025, a borrower must make a payment of at least $10 to do so.

Federal borrowing limits and loan program cuts

The new law makes major changes to student loan programs and their limits, beginning in July 2026:

• Elimination of subsidized and grad PLUS loans: Undergraduate students are no longer able to take out subsidized student loans, and graduate students can't take out Direct PLUS Loans starting on July 1, 2026. There's an exception (of up to three academic years) for students who have already received a loan for the program they're enrolled in.
• New Direct Unsubsidized Loan limits: Previously, graduate and professional students could borrow $20,500 in unsubsidized loans annually. While the same is true for graduate students, students enrolled in professional programs can now borrow up to $50,000 per year. The new aggregate loan limit for Direct Unsubsidized Loans is $100,000 for graduate students. For professional students, the aggregate limit is $200,000.
• Parent PLUS loan restrictions: Parents can now only take out a parent PLUS loan if the dependent student has already hit their annual unsubsidized loan limit. The annual limit is $20,000, and the aggregate limit on parent PLUS loans is $65,000.
• $200,000 aggregate loan limit: A new aggregate loan limit of $200,000 is in place for any borrower across all federal loan types, except Direct PLUS Loans.

Pell Grant modifications

Several changes have also been made to Pell Grant eligibility, and they take effect on July 1, 2026:

• Foreign income: Any foreign income that's exempt from taxation or that allows an individual to receive a foreign tax credit must be included in the adjusted gross income calculation for Pell Grant eligibility.
• Student Aid Index: If your Student Aid Index is more than twice the amount of the maximum Pell Grant award, you're not eligible for a Pell Grant, regardless of your adjusted gross income.
• Enrollment status: You must be enrolled at least half-time to receive a Pell Grant. The bill also increases the number of credits you must be enrolled in to qualify for full-time enrollment to receive a Pell Grant.
• Workforce programs: Under the new bill, the Department of Education must award Workforce Pell Grants to students enrolled in eligible workforce programs. Programs that provide at least 150 clock hours of instruction during a minimum period of 8 weeks are eligible. Programs that are 600 hours or more in duration and span 15 weeks or more are ineligible.

Institutional accountability

Students aren't the only ones affected by the new law. Schools will face new rules imposing financial penalties tied to student loan repayment outcomes:

• Schools that participate in federal student loan programs must make annual risk-sharing payments based on the nonrepayment balance of student loan cohorts.
• If the school hasn't made a payment within 12 months of receiving a notification from the Department of Education, it cannot offer Direct Loans to students.
• A school isn't allowed to offer Direct Loans or award Pell Grants if it hasn't made a risk-sharing payment in 18 months.
• Schools that don't make payments within two years can't participate in federal student loan programs for at least 10 years.
• For-profit schools participating in federal student aid programs are no longer required to derive a minimum of 10% of their tuition and fee revenue from nonfederal funds.

What student borrowers should do now

If you're planning to attend graduate school starting in 2026, you should carefully consider your borrowing options. The new aggregate unsubsidized loan limit for graduate students is nearly $40,000 lower than it previously was, and grad students can no longer take out grad PLUS loans. These borrowers may need to take out private student loans to cover the cost of their education.

Additionally, Kantrowitz, author of “How To Appeal for More College Financial Aid,” says federal student loan borrowers who are currently in a deferment or forbearance period will probably need to switch to the Repayment Assistance Plan.

“The legislation repeals the economic hardship and unemployment deferments and limits forbearances to nine months out of every 24 months,” explains Kantrowitz. “This means that borrowers who are struggling financially will need to switch to the Repayment Assistance Plan if their financial circumstances do not improve instead of persisting long-term under a deferment or forbearance.”