Historic changes are coming to the higher education landscape for millions of Americans.
The passage of President Trump’s One Big Beautiful Bill Act will impact millions of people starting next summer.
While most changes won’t begin until July 1, 2026, parents, students and individuals with aspirations for graduate or professional degrees need to know what’s looming, because it may change, or at least impact, their plans.
Higher education developments
Here’s a breakdown of the act’s major developments that can affect families’ planning for college costs:
- Parents who have relied on the federal Parent PLUS Loan won’t always be able to borrow as much as they need and on the timetable that they’d like.
- Parents’ ability to secure lower PLUS Loan monthly payments by participating in federal income-driven repayment will be cut off next year for new borrowers. Current ones can protect that option, but they have to act soon.
- The Grad PLUS Loan will disappear starting with the 2026–2027 school year. The remaining federal loan avenue for graduate degrees will be capped.
- All but one of the current income-driven repayment plans for federal college loans will be scrapped and a new plan will be offered instead.
- Colleges will now be held accountable if they graduate students with bachelor’s or advanced degrees who don’t earn at least the median income of high school graduates and bachelor’s degree holders respectively.
Parent PLUS Loan
With the federal changes, parents will still be able to borrow for their child’s college costs through Parent PLUS Loans, but the amount will be capped at $65,000 per student. So, if a parent borrowed $65,000 for his/her eldest child to attend college, the parent could also borrow up to $65,000 for another child.
The ceiling by itself should not be an issue for most parents. The average overall Parent PLUS Loan debt is roughly $30,000. In reality, only 5% of undergraduate parents take out PLUS Loans. The largest group who borrow through this loan are black parents with roughly 26% taking advantage of the program.
What will pose problems for some parents is the new yearly amount that a parent may borrow for each child, which will be $20,000. As an example, let’s say parents paid the full tab for the first two years of a private college and then needed to borrow $30,000 for the junior year. That would be impossible under the new law. In this scenario, the parents would have to find a different way to come up with $10,000.
Parent PLUS and income-driven option
Starting next July, parents who take out new Parent PLUS Loans will not be able to repay based on a federal income-driven (IDR) repayment option. Being able to take advantage of an IDR plan and significantly lower payments is crucial for parents who have overborrowed, lost a job(s), retired, or in some other way find regular fixed-term monthly payments financially impossible.
There is still time, however, for current Parent PLUS borrowers who want to take advantage of an IDR. They must consolidate their Parent PLUS Loans into a federal Direct Consolidation Loan before July 1, 2026. After consolidating, parents will have until June 30, 2028, to join an IDR plan.
Grad PLUS Loan
To understand why the elimination of the Grad PLUS Loan will be devastating for some individuals, you need to understand what Grad PLUS Loans have traditionally provided.
Under the current Grad PLUS, a graduate student can borrow up to the cost of attendance minus the amount tapped first by the federal Direct Loan. The Direct Loan has always been preferable because it offers a lower interest rate.
The new law grandfathers in current student loan borrowers who participate in the PLUS Loan program if they have no more than three academic years left to complete their program, or any lesser period of time as determined by the program length and amount of the program they still have yet to complete as of June 30, 2026.
Grad Direct Loan caps
With the Grad PLUS Loan vanishing on July 1, 2026, grad students’ only federal option will be the Direct Loan for graduate students. There will be a lifetime cap on the amount that they can borrow. For graduate programs, the lifetime cap will be $100,000 with an annual cap of $20,500.
For professional school programs, the lifetime cap will be $200,000, with an annual ceiling of $50,000. Professional programs include the following:
- Law
- Medicine
- Dentistry
- Pharmacy
- Veterinary medicine
- Podiatry
- Physician assistants
- Nurse practioners
- Optometry
- Chiropractic
- Physical therapy
- Theology
Critics of the Grad PLUS changes argue that ratcheting back federal lending will hurt low-income and middle-income individuals who need to borrow more than they will now be able to access. Some critics predict that these individuals will have to forego advanced degrees while the loan ceilings won’t hinder students with wealthy parents.
The view widely shared by those who follow the higher-ed industry is that grad school prices have gotten out of control due to easy access to borrowed dollars. Pursuing any graduate or professional degree was possible for anyone because they could borrow the full fare from the federal government. Consequently, schools could raise their prices and still attract students. These institutions never suffered any financial consequences even if students graduated with poor job prospects and frightening debt loads.
Turning the screws on the federal money spigot is bad news for colleges and universities that have heavily depended upon grad and professional school tuition to generate income.
With borrowing limited, some individuals might decide to skip pursuing a graduate or a professional degree. Others might decide to turn to private student loans.
The private loan industry, which has largely been on the sidelines for post-bachelor’s degree because of the free-flowing federal money with its better terms, will undoubtedly begin devoting tremendous marketing efforts on this older student cohort. Some universities may end up creating partnerships with lenders for their grad students.
Private loans will certainly cost more with interest rates dependent on underwriting and rates often variable. Underwriting loan requirements will keep some individuals from qualifying or being forced to pay an exorbitant interest rate on the private market.
With adequate financing harder to obtain and more expensive, less popular grad programs could be shuttered.
Income-driven repayment plans
Under the new law provisions, most of the current federal income-driven repayment plans will phase out by July 1, 2028. The plans headed for the dust-bin are the following:
The only remaining income-driven plan to exist will be the Income-Based Repayment (IBR) plan. Borrowers on IBR will be allowed to stay on it as a legacy option, but starting next summer, this option will not be available for new borrowers.
Beginning next summer, new borrowers can choose between the fixed standard repayment (not tied to income ability) and the new income-driven option called Repayment Assistance Plan (RAP).
The monthly RAP payments will be higher than the SAVE plan, which in recent times has been the most popular choice because of its generous terms. The repayment time requirement for the legacy IBR is 25 years and 30 years for RAP.
The repayment period for the standard fixed payments will depend on how much debt the individual has. Here is the breakdown:
| Amount Borrowed |
Repayment Term |
| Less than $25,000 |
10 years |
| $25,000–$49,999 |
15 years |
| $50,000–$99,999 |
20 years |
| $100,000 or more |
25 years |
Professional and graduate school accountability
A potential threat to some schools is the federal government’s new ability to punish institutions if graduates of specific academic programs don’t earn what the government considers an acceptable wage.
For undergraduates, earnings four years after graduation must meet or exceed the median earnings for adults, aged 25–34, with a high school degree in two of the three consecutive years. In addition, graduate degree holders must meet or exceed the median income of bachelor’s degree recipients using the same guidelines. The earnings data will come from the U.S. Census Bureau for the state level, but nationwide earnings data will be used for the minority of schools that have at least 50% of their students from out-of-state.
This new rule will certainly put some graduate school programs, in particular, in the crosshairs. Graduate students represent 15% of borrowers, but 40% of the outstanding debt.
Here is what Jeff Selingo, a highly respected higher-ed observer and the former editor of The Chronicle of Higher Education had to say about the accountability provision:
“With the spigot of easy money tightening, we’ve probably seen the end of the $150,000 MFA from the University of Southern California, the $125,000 master’s in journalism from Columbia, or the $100,000 master’s of arts in humanities at the University of Chicago. Either those programs get a massive tuition cut, offer heavy discounts off the sticker price, or some will likely close down altogether.”
Bottom line
The new regulations will make it important for parents to be strategic in how they borrow for college and the academic programs they select.
At this point, it’s impossible to know how all the changes will play out, but start working now with clients who may be affected so that they can make the smartest decisions.