OBBBA: Big Changes Ahead for Student Loans and Aid
The One Big Beautiful Bill Act makes major changes to the ways Americans can save, borrow and pay for education. From ABLE accounts to student loan caps, the law overhauls many familiar programs. Some provisions will not take effect until July 1, 2026, while others may have already started. Below are what students, parents and graduates need to know.
Some savings options are expanded
ABLE accounts are tax-advantaged savings plans for people with disabilities. Money in these accounts can be used to pay for qualified disability expenses, including tuition, books, supplies, educational support services and the like. Previously, ABLE accounts were only available to individuals whose disability began before age 26, but the OBBBA will raise the limits to include individuals whose disability begins before age 46.
Section 529 plans will also get an upgrade. These state-sponsored savings accounts were originally intended for college, but subsequent legislation expanded qualified use to include the cost of K-12 education, apprenticeship programs, student loan repayment and Roth IRA contributions. Under the OBBBA, families will be able to withdraw up to $20,000 a year for homeschool education or credentialing programs.
Nonprofits have long been able to award such scholarships that families may use to help cover the cost of tuition or other expenses at private or charter schools. The OBBBA appears to formalize and expand how these funds can be used alongside tax-advantaged education benefits such as 529 plans.
Some rules are revised
The OBBBA does not change undergraduate borrowing limits, but it eliminates several federal loan and repayment programs for new borrowers, including:
- Graduate PLUS loans (federal loans available to graduate and professional students)
- Saving on a Valuable Education plans
- Pay As You Earn plans
- Revised Pay As You Earn plans
- Income-Contingent Repayment plans
- Deferments and forbearance periods due to hardship or unemployment
Borrowers already in these programs may continue until July 1, 2028, when most will transition to new plans. Two options will replace them:
- Standard Repayment Plan: 10 to 25 years, depending on loan size
- Repayment Assistance Plan: 1% to 10% of income, with forgiveness after 30 years
Married borrowers will be allowed to file taxes separately to exclude spousal income from repayment calculations.
The law also sets new lifetime borrowing caps starting in 2026:
- Graduate students: $20,500 per year; $100,000 lifetime
- Professional students: $50,000 per year; $200,000 lifetime
- Parents (per student): $20,000 per year; $65,000 lifetime
- All borrowers combined: $257,000 cap
This cap includes loans for undergraduate, graduate and professional degrees.
Public Service Loan Forgiveness will still exist, but new borrowers must enroll in RAP. Parent PLUS borrowers who want affordable repayment options must consolidate their loans by July 2026. And while loans discharged due to death or disability will remain tax free, borrowers must now provide a Social Security number.
Borrowers in default will still be able to use loan rehabilitation, but they will be able to do so twice rather than the previous once.
Expect fewer grants and tighter eligibility
Students will find it harder to qualify for Pell Grants under the new rules, which tie eligibility to a new Student Aid Index. Those whose financial need does not fall below the required threshold — roughly twice the maximum Pell award — will no longer qualify. Further, those who receive other grants or scholarships that meet or exceed the full cost of attendance will no longer be eligible for Pell Grant funding.
Start planning now
Even though most of these changes will affect only new federal loans and grants issued after July 1, 2026, the changes are substantial. Students and families will need to look at private loans, nonprofit programs, employer tuition assistance and state-based aid to fill the gaps.
This summary scratches the surface. Work closely with a financial aid adviser or tax professional to make informed choices in the years ahead.
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