Borrowing for College? 5 BIG Changes You Need to Know

The “One Big Beautiful Bill” was signed into law on July 4, 2025 and it will dramatically change how much students and parent can borrow for college and graduate school. Repayment structures are changing too, extending debt over longer terms, increasing overall interest costs and requiring better financial planning.

Below are 5 BIG CHANGES to understand before applying:

#1 - Federal Student Loan Limits are Changing:

• Parent PLUS loans are capped starting in 2026: up to $20,000 per child per year, with a $65,000 lifetime cap per child 

• Graduate students lose access to Grad PLUS loans after July 1, 2026, with new limits:– $20,500 per year and $100,000 lifetime for typical master’s programs– $50,000 per year and $200,000 lifetime for professional degrees like medicine or law 

• All borrowers now face a combined lifetime limit of roughly $257,500 across undergraduate and graduate federal borrowing 

  
  

#2 - Repayment Plans are Changing:

• For loans disbursed on or after July 1, 2026, borrowers choose between only two repayment plans:

  1. A new Standard Plan with fixed monthly payments over 10–25 years depending on loan size

  2. The Repayment Assistance Plan (RAP): an income-based plan charging 1–10% of adjusted gross income, with a minimum $10/month payment, interest forgiveness on unpaid interest, and loan forgiveness after 30 years of on-time payments 

• Existing borrowers in older plans like SAVE, PAYE, or ICR must transition to RAP or the new Standard Plan by July 1, 2028 

• Parent PLUS borrowers taking out new loans after July 1, 2026, lose eligibility for income-driven plans (including RAP) and must use the new Standard Plan instead 

  
  

#3 - Deferments & Forbearance are Changing:

• Deferments like unemployment and economic hardship are eliminated for loans disbursed after July 1, 2026, and forbearance is capped at 9 months per rolling 24-month period (with certain exceptions) starting in 2027 

  
  

#4 - Pell Grant & Aid Eligibility Adjustments are Changing:

• Starting July 1, 2026, eligibility for Pell Grants is tightened:– Students with full-ride scholarships become ineligible, regardless of income.– SAI (Student Aid Index) calculations become stricter, especially for families with businesses or foreign income, potentially reducing awards for many low- and moderate-income students

• Pell Grant eligibility is now extended to certain short-term vocational or workforce training programs, expanding access for nontraditional learning paths

#5 - Education Tax and Savings Credits are Changing:

• The law makes the employer student-loan repayment exclusion permanent which means employers can continue to contribute up to $5,250/year tax-free toward employees’ student loans, with inflation indexing beginning in 2027 

• 529 education savings plans are expanded substantially:

  • Starting in 2026, K-12 tuition allowance doubles to $20,000/year, and new qualified expenses like tutoring, standardized test fees, online courses, and dual-enrollment are eligible

  • Funds can now cover vocational, credentialing, and professional licensing programs recognized by states or credentialing bodies 

    
    

Essential College Coaches Take Aways for Students:

• Borrow more conservatively—Graduate PLUS is gone and caps are tighter.

• Repayment is getting harder, especially under RAP, with slower forgiveness and no zero-payment option.

• Loan protections like deferments are being reduced or phased out.

  
  

Essential College Coaches Take Aways for Parents Borrowing via Parent PLUS:

• There is now limited borrowing capacity and no income-driven payment options for new loans.

• Some families may be pushed toward costlier private loans, which lack federal protections

  
  

Essential College Coaches Take Aways for Families Saving with 529 or Employer Support:

• Expanded 529 flexibility offers new planning paths for trade, credentialing, and K-12 support.

• Employer contributions to student loan payments remain tax-free and inflation-indexed—a key benefit to consider.

Summary Table

Area	Key Change	Effective Date
Graduate loan caps	$20.5k/year or $50k/year professional school; lifetime caps	July 1, 2026
Parent PLUS limits	$20k/year, $65k lifetime per child	July 1, 2026
New repayment plans	Standard Plan or RAP only	July 1, 2026
Deferment/forbearance limits	Hardship deferment eliminated; forbearance capped	2026–2027
Pell Grant eligibility	Full-ride scholarship hurts eligibility; stricter SAI	Academic year 2026-27
529 plan expansion	K-12, credentialing, licensing, tutoring included	Tax year 2026
Employer loan repayment tax exclusion	Permanent & inflation-linked	Now through 2026+, indexed from 2027