On July 4, 2025, President Donald Trump signed into law the sweeping "One Big Beautiful Bill Act," a landmark piece of legislation set to transform American higher education and student loan systems. The nearly 900-page bill introduces significant reforms, including tighter caps on student borrowing, revamped repayment plans, expanded workforce-focused financial aid, and new accountability measures for colleges and universities. These changes are projected to save taxpayers approximately $349 billion, according to the Committee for a Responsible Federal Budget.
The law places strict limits on how much students and parents can borrow through federal loans, effective from July 1, 2026. Graduate students will be capped at borrowing $20,500 annually, with a lifetime maximum of $100,000. Meanwhile, professional students enrolled in law or medical programs can borrow up to $50,000 per year, capped at $200,000 total. Parents borrowing on behalf of their children through the Parent PLUS loan program face a lifetime cap of $65,000, with an annual limit of $20,000.
These caps represent a substantial reduction from previous limits and may not fully cover the rising costs of higher education. For example, the average cost of a master's degree ranges from $44,640 to $71,140, while law and medical degrees typically cost around $206,000 and $230,000, respectively. Experts warn that these borrowing restrictions are likely to push many students toward private loans, which often come with higher interest rates and less favorable terms. Bryce McKibben, senior director of policy and advocacy at the Hope Center for Student Basic Needs at Temple University, told MarketWatch, "We’re going to see huge growth of the private student-loan market as a result of this bill." This shift could complicate financing for students, especially those from low- and middle-income backgrounds.
Adding to the borrowing changes, the bill phases out Grad PLUS loans by 2026—a program many graduate students have relied upon to cover costs exceeding Stafford loan limits. In Alabama alone, more than $120 million in Grad PLUS loans were disbursed across 23 colleges and universities for the 2022-2023 academic year. Faulkner University, a private Christian college in Montgomery, administered 367 Grad PLUS loans in 2022, generating approximately $11.3 million in revenue, which accounts for over 20% of the institution’s total revenue. The elimination of this program raises concerns about how students will finance graduate education moving forward.
Alongside borrowing caps, the legislation overhauls student loan repayment options. Starting July 2026, new federal borrowers will be limited to just two repayment plans: a standard fixed monthly plan and a new income-based option called the Repayment Assistance Plan (RAP). The standard plan extends repayment terms from 10 to 25 years depending on the loan amount, potentially lowering monthly payments but increasing the total interest paid over time.
The RAP replaces Biden-era income-driven plans like SAVE and requires borrowers to pay between 1% and 10% of their adjusted gross income, with a mandatory minimum monthly payment of $10 regardless of income. Notably, the RAP includes an interest waiver feature that forgives unpaid interest if monthly payments don’t cover it, and it guarantees a minimum $50 reduction in principal each month, with the government covering the difference if necessary. Payments are also reduced by $50 per dependent, providing some relief to borrowers with families.
However, the RAP extends forgiveness timelines to 30 years, longer than previous plans that offered forgiveness after 20 or 25 years. This longer repayment period means many borrowers could be in debt well into middle age or beyond. Betsy Mayotte, president of the Institute of Student Loan Advisors, cautioned, "Longer debt can impact things like home purchase, the cost of other credit and, of course, retirement." Student loan expert Robert Farrington noted, "There will be winners and losers," with some benefiting from lower monthly payments but others facing higher overall costs due to extended repayment terms.
Current borrowers with loans taken before July 1, 2026, will retain access to a version of the existing Income-Based Repayment (IBR) plan, paying 10% to 15% of discretionary income with forgiveness after 20 to 25 years. Those enrolled in the SAVE plan have until July 1, 2028, to switch to one of the new plans or face automatic enrollment in RAP.
In an effort to hold educational institutions accountable, the bill ties federal financial aid eligibility to graduates’ earnings. Undergraduate programs whose graduates earn less than the median salary of a high school graduate in their state will lose access to federal loans. Similarly, graduate programs will face penalties if their alumni earn less than the median bachelor’s degree holder in the same field. The Committee on Education and the Workforce emphasized that "Colleges should have a stake in their students’ success and be responsible for reimbursing taxpayers for a portion of their losses if students don’t see financial value from enrolling in an institution and can’t repay." This measure could impact over half of two-year degree programs nationwide and aims to incentivize institutions to improve educational outcomes.
The legislation also expands Pell Grant eligibility to include short-term workforce training programs lasting between 8 and 15 weeks, targeting in-demand sectors and occupations. This "Workforce Pell" aims to make financial aid more accessible to adult learners, career changers, and those seeking alternatives to traditional four-year degrees. Approximately 32.7% of Alabama college students currently receive Pell grants, with an average award of $5,167. The process for obtaining Pell grants remains unchanged, requiring students to complete the Free Application for Federal Student Aid (FAFSA) and meet income requirements.
Further, the law imposes a new tiered federal tax on private university endowments, with rates reaching up to 8% for institutions holding more than $2 million per student. Elite universities like Harvard, with endowments exceeding $53 billion and more than $2.9 million per student, fall into the highest tax bracket. This replaces the previous flat tax rate of 1.4%, aiming to generate additional revenue from wealthy institutions.
Some critics worry these reforms could restrict access to higher education for low-income students or reduce educational options. Mark Kantrowitz, a student loan and financial aid expert, warns that "loan limits may affect low- and middle-income students who are enrolled at high-cost colleges, where the federal loan limits might not be enough." Betsy Mayotte added, "If the cost of tuition doesn't go down, we end up with a lot of students that reach their max federal loan eligibility and then don't qualify for private loans to finish their degree. Having debt and no degree is one of the biggest indicators of default within the student loan portfolio."
Supporters, however, argue that the legislation promotes fiscal responsibility and long-term affordability. Michael Shires, Ph.D., Vice Chair of Educational Opportunity for the America First Policy Institute, stated, "Student loan limits, income contingent repayment…and reversing the Biden-era illegal student loan forgiveness activities are policies that work to create a drastically more affordable 4-year college degree." The bipartisan expansion of workforce Pell grants is also seen as a pragmatic step to align education with labor market needs.
As these reforms roll out, the higher education landscape in the United States is poised for significant change. Students, families, and institutions alike will need to navigate tighter borrowing limits, altered repayment structures, and heightened accountability measures. Whether these changes will ultimately make college more affordable and accessible remains to be seen, but the stakes for millions of borrowers and taxpayers are undeniably high.
