The “One Big Beautiful Bill Act,” referred to as H.R. 1, was signed by President Donald Trump on July 4, 2025. This extensive piece of legislation impacts various policies, including those related to paying for higher education.
Here are several key changes that may affect how students and families finance education beyond high school and manage student loan repayment.
Pell Grants
Workforce Pell Grant Program
Effective Date: July 1, 2026
The law creates a Workforce Pell Grant program. Eligible programs must be between 8 to 15 weeks, offered by accredited institutions, and lead to a “portable, stackable” credential. These programs must be approved by the state governor and align with in-demand jobs and meet employers’ needs. Remedial, non-credit, English language learning, and study abroad coursework are not eligible for funding. Additional requirements exist, and details will be worked out through the federal negotiated rulemaking process.
Federal Loan Borrowing
Federal Parent PLUS Loan Limits
Effective Date: July 1, 2026
Parent PLUS Loans are loans parents can borrow to help finance their child’s education. Currently, parents can borrow up to the total cost of education minus the total amount of other financial aid the student is receiving. H.R. 1 limits borrowing to $20,000 per year, per dependent student, with a $65,000 aggregate limit per dependent student. This provision goes into effect on July 1, 2026. There is an exemption, for up to three years, for parents who borrow a PLUS Loan before July 1, 2026.
Federal Graduate Loan Limits
Effective Date: July 1, 2026
Graduate students can currently borrow up to $20,500 in Federal Direct Unsubsidized loans each year. H.R. 1 maintains this annual loan limit of $20,500 for graduate students and sets a $50,000 annual borrowing limit for professional students. The aggregate limit is capped at $100,000 for graduate students and $200,000 for professional students, not including amounts already borrowed as an undergraduate.
Federal Graduate PLUS Loans
Effective Date: July 1, 2026
Graduate PLUS Loans are loans that graduate students can borrow to help finance their education. Currently, students can borrow up to the total cost of education minus the total amount of other financial aid (including the $20,500 in Federal Direct Unsubsidized Loans). H.R. 1 eliminates the Graduate PLUS program, effective July 1, 2026. There is an exemption, for up to three years, for students who borrow a Graduate PLUS loan before July 1, 2026.
Loan Proration
Effective Date: No date stated in the bill
Institutions will be required to prorate annual loan amounts in direct proportion to the percent of full-time status for which the student is enrolled. Additional guidance from the Department of Education is needed to fully understand the impact of this provision.
Student Loan Repayment
Repayment Assistance Plan
Effective Date: July 1, 2026
H.R. 1 creates a new income-based repayment plan called the Repayment Assistance Plan (RAP). Under this plan, monthly payments range from one to 10% of the borrower’s Adjusted Gross Income (AGI) with a minimum payment of $10 per month. Monthly payment will be reduced by $50 per dependent.
If a borrower is married and filing separately, the spouse’s AGI and number of dependents will not be included in the payment calculation. If the monthly payment is not enough to cover accrued interest, the interest is waived and will not be added to the loan balance. If the borrower makes an on-time payment that reduces their principal by less than $50, the Department of Education will cover the difference, up to the amount paid.
There is no cap on monthly payments, even if the payment amount is higher than the standard repayment plan payment would be. The maximum repayment period is 30 years.
Repayment Plans for New Borrowers
Effective Date: July 1, 2026
Borrowers with new loans on or after July 1, 2026, will have two options to repay their federal student loans: a new standard repayment plan with fixed monthly payments or the new income-based plan, the RAP.
Repayment Plans for Current Borrowers
Effective Date: July 1, 2026, and July 1, 2028
Current borrowers with no new loans made on or after July 1, 2026, will continue to be eligible to enroll in the following repayment plans: current Standard, current Income Based (IBR), Graduated, Extended, or the new income-based RAP. Current borrowers enrolled in ICR, (Pay As You Earn (PAYE), or SAVE repayment plans must transition to one of the new eligible repayment plans (RAP, new Standard Plan, or Amended IBR) by July 1, 2028. If no selection is made by that date, they will be moved into RAP.
Note: Federal Student Aid (StudentAid.gov) has not yet updated its website to reflect H.R. 1 or the new repayment criteria or options. Check with your loan servicer or continue to check the StudentAid.gov site in the coming months.
FAFSA Formula Changes
FAFSA Asset Exemptions
Effective Date: Award year 2026-27
H.R. 1 restores the exemptions for family farms and family-owned small businesses (with fewer than 100 full-time employees) from the SAI calculation. Additionally, the asset exemption expands to include family-owned commercial fisheries. The 2026-27 FAFSA, which will be released on October 1, 2025, will reflect these changes.
Foreign Income and Pell Eligibility
Effective Date: July 1, 2026, starting with award year 2026-27
Foreign income included in the AGI will now be used to calculate Pell Grant eligibility. This will result in the question asking individuals if they have foreign income to be removed from the 2026-27 FAFSA, which will be released on October 1, 2025.
Pell Eligibility for Students with High Student Aid Indexes (SAI)
Effective Date: July 1, 2026
Currently, a student whose family has a low Adjusted Gross Income (based on the federal poverty guidelines) can qualify for a Pell Grant regardless of their SAI (even if the family has significant assets). H.R. 1 addresses this scenario by preventing students from receiving Pell Grants if their SAI exceeds twice the maximum Pell Grant award. For reference, the current maximum Pell Grant award is $7,395.
Section 529 Plans
K-12 Eligible Expenses
Effective Date: July 5, 2025
H.R. 1 expands the definition of K-12 qualified education expenses, beyond tuition only, to include all the following expenses, effective for distributions on or after July 5, 2025.
- Tuition
- Curriculum and academic materials, including online courses
- Books and instructional materials
- Tuition for tutoring or educational classes outside of the home, including at a tutoring facility. The tutor cannot be related to the student and must qualify as one of the following:
- A licensed teacher,
- A current or former teacher at an eligible educational institution, or
- A subject matter expert in the relevant subject
- Fees for a nationally standardized achievement test, an Advanced Placement examination, or any college admissions/entrance exam (e.g., SAT, ACT, etc.)
- Fees for dual enrollment in an institution of higher education
- Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies.
The legislation applies to K-12 attendance or enrollment at a public, private, or religious elementary or secondary school. This legislation does not include homeschooling.
K-12 Expenses Limit
Effective Date: January 1, 2026
Beginning January 1, 2026, the total limit for all K-12 expenses will increase to $20,000 per year, up from $10,000.
Postsecondary Credentialing Expenses
Effective Date: July 5, 2025
H.R. 1 adds certain postsecondary credentialing expenses to the definition of qualified higher education expenses if the beneficiary is enrolled in a recognized postsecondary credential program.
Qualified postsecondary credentialing expenses include:
- Tuition, fees, books, supplies, and equipment required for enrollment in a recognized postsecondary credential program.
- Testing fees required to obtain or maintain a recognized credential.
- Continuing education fees necessary to maintain a recognized postsecondary credential program.
A recognized postsecondary credential is defined as:
- A postsecondary employment credential that is industry recognized and:
- accredited by the Institute for Credentialing Excellence, the National Commission on Certifying Agencies, or the American National Standards Institute; or
- included in the Credentialing Opportunities On-Line (COOL) directory of credentialing programs (or successor directory) maintained by the Department of Defense or by any branch of the Armed Forces; or
- identified by the Secretary of the Treasury, after consultation with the Secretary of Labor.
- Any certificate of completion of an apprenticeship that is registered and certified with the Secretary of Labor under the National Apprenticeship Act
- Any occupational or professional license issued or recognized by a State or the Federal Government
- Any recognized postsecondary credential as defined in Section 3(52) of the Workforce Innovation and Opportunity Act
FAQs
What are some of the Pell Grant provisions that were passed by the House but not included in H.R. 1?
- The House bill redefined full-time for Pell Grant eligibility as 30 credits per year. This change was not included in the final bill, and full-time enrollment for Pell Grant eligibility continues to be defined as 24 credits per year (12 per semester).
- Less than half-time Pell Grants were eliminated in the House bill, but not included in H.R. 1, so they continue to exist.
What are some of the student loan provisions that were passed by the House but not included in H.R. 1?
- The House bill eliminated subsidized student loans for undergraduates. This would have resulted in only unsubsidized student loans being available to undergraduate students. The final bill did not include that provision, so subsidized student loans remain for eligible undergraduates.
- Restrictions were added to Parent PLUS Loan borrowing in both the House and final bill, but the final bill is less restrictive than the House bill. Aggregates are per student, not per parent, allowing parents to continue to borrow up to the aggregate maximum of $65,000 for multiple students. Additionally, the requirement that students exhaust their loan eligibility before a parent can borrow a Parent PLUS Loan was included in the House bill but not in H.R. 1.
In the section on federal graduate loan limits, the caps differ between graduate and professional students. What are some examples of professional students?
Examples of a professional degree include but are not limited to Pharmacy (Pharm.D.), Dentistry (D.D.S. or D.M.D.), Veterinary Medicine (D.V.M.), Chiropractic (D.C. or D.C.M.), Law (L.L.B. or J.D.), Medicine (M.D.), Optometry (O.D.), Osteopathic Medicine (D.O.), Podiatry (D.P.M., D.P., or Pod.D.). Typically, the need to obtain a license is associated with most professional students.
What are some provisions that may not be implemented by their effective date?
New programs, such as the Workforce Pell Grant Program, will need to go through the federal negotiated rule-making process. This process, often referred to as “Neg Reg” is required to expand upon and clarify the details before the program can be implemented. The timeline could be tight for changes that are subject to the neg reg process, so stay tuned for updated information in the months to come.
