The Act emphasizes the return on student investment through new accountability metrics and limits on the loans that students and their parents can incur for their education.

On July 4, 2025, President Donald Trump signed into law the 2025 Budget Reconciliation Act (formally referred to as the “One Big Beautiful Bill”), a multifaceted reconciliation package that extends the Tax Cuts and Jobs Act of 2017 and includes broad changes to government spending. The Act makes significant changes to federal financial aid programs administered under Title IV of the Higher Education Act of 1965, as amended. These changes include eliminating Grad PLUS loans for new graduate and professional students, imposing new annual and lifetime borrowing limits across multiple loan programs, establishing a new accountability metric, enacting Workforce Pell and adopting new loan repayment options.

The Act emphasizes the return on student investment through new accountability metrics and limits on the loans that students and their parents can incur for their education. Institutions are advised to carefully review the proposed changes and develop a strategy for implementation and adjustments. It is important to recognize that implementation of the higher education provisions included in the Act will ultimately be finalized through negotiated rulemaking. The U.S. Department of Education has announced that the proposed loan changes will be addressed by the Reimagining and Improving Student Education (RISE) Committee. The RISE Committee will hold sessions from September 29 to October 3, 2025, and November 3 to 7, 2025. The changes to accountability and Pell Grant programs will be addressed by the Accountability in Higher Education and Access through Demand-driven Workforce Pell (AHEAD) Committee. The AHEAD Committee will hold sessions from December 8 to 12, 2025, and from January 5 to 9, 2026. See our previous Alert for more information about the negotiated rulemaking process.

New Annual Loan Limits

Change	Description	Effective Date
Maximum borrowing limits	Establishes maximum lifetime borrowing limit for all students at $257,500, excluding Parent PLUS loan amounts.	July 1, 2026
Student loan limitations	Allows institutions to limit the total amount of loans made for an academic year for a student and a parent for a program of study, as long as any such limit is applied consistently to all students enrolled in such program of study.	July 1, 2026
Legacy provision	Legacy provision included for current borrowers to borrow under current limits for the lesser of the remainder of their expected time to credential or three academic years.	July 1, 2026
Undergraduate loan limit	No changes are proposed to the undergraduate loan programs.	n/a
Graduate and professional federal direct Stafford loan limits	Grad PLUS loan will be replaced with new unsubsidized federal direct Stafford loan limits for graduate students. For graduate students, loans are limited to $20,500 per year and a $100,000 aggregate lifetime cap; for professional students, $50,000 per year and a $200,000 aggregate lifetime cap.	July 1, 2026
Part-time students	Part-time students remain eligible for federal loans, but the new annual and aggregate borrowing limits will be prorated based on reduced enrollment status.	July 1, 2026

Direct Loan Programs

Change	Description	Effective Date
Elimination of Grad PLUS	Elimination of the Graduate PLUS program with legacy provisions for current borrowers.	July 1, 2026
Parent PLUS loans	New Parent PLUS loan limits of $20,000 per year cap per dependent student and a $65,000 aggregate limit per dependent student. Three-year grace period on new caps, as long as a parent borrowed before June 30, 2026.	July 1, 2026

 

Changes to Repayment Plan Programs

Change	Description	Effective Date
Changes to repayment plans (no loans after July 1, 2026)	Current borrowers can continue to enroll in existing repayment plans. Must transition to new plan by July 1, 2028.	Transition as of July 1, 2028
Changes to repayment plans (new loans after July 1, 2026)	Two options: (i) new standard repayment plan with fixed payments and terms and (ii) repayment assistance plans (RAP).	July 1, 2026
Creation of RAP	New income-based repayment plan with minimum monthly payments of $10 for 30 years. Base pay of monthly amounts is set by sliding scale based off percentage of borrower adjusted gross income.	July 1, 2026
Changes to deferment and forbearances	Eliminates economic hardship deferment and unemployment deferment. Reduces forbearances to nine months at a time during 24-month period. Allows students to rehabilitate any of their education loans twice.	July 1, 2027

Accountability Metric

New accountability measure	“Low earnings outcomes.” For undergraduate programs, compares median earnings of completers four years after program completion with the earnings of “working adults” with only a high school degree or GED who are not enrolled in higher education.   For graduate programs, compares the median earnings four years post-enrollment with the earnings of “working adults” with only a bachelor’s degree who are not enrolled in higher education.	July 1, 2026
Institutional warnings	Requires warnings to students if program fails “low earnings outcomes” measure.	July 1, 2026
Appeal	Opportunity to appeal data for programmatic median earnings.	July 1, 2026

 

 Regulatory Relief

Change	Description	Important Date
Delays implementation of borrower defense to repayment rule (BDR) (2022)	Delays implementation of BDR and closed school discharge rules enacted in 2022 final rules until July 1, 2035.	July 1, 2035
Delays implementation of closed school discharge rule (2022)		July 1, 2035

 

Pell Program

Change	Description	Effective Date
Pell funding surplus	$10 billion in additional funding to Pell Grant program.	FY 2026 Budget
Creation of Workforce Pell program	Extension of Pell program to include programs between 150 and 600 clock hours (and between eight weeks and 15 weeks). Programs must lead to a “portable, stackable” credential across more than one employer or prepare students for entry-level employment for which there is only one recognized postsecondary credential. The program must be approved by the state governor as aligned with in-demand jobs and meeting employers’ needs, been offered for at least one year, satisfy performance benchmarks and cannot exceed value-added earnings of graduate of completers three years prior.	July 1, 2026
Changes to Pell provisions	Changes include the accounting for foreign income for Pell Grant determinations, and additional eligibility requirements for Pell Grant recipients based on Student Aid Index and scholarship funding.	July 1, 2026

 

Tax Changes

Change	Description	Effective Date
Endowment tax	Revises endowment tax to institute a tax between 1.4% and 8% based on per-student endowment. Applies only to private institutions and exempts institutions with fewer than 3,000 tuition-paying students.	December 31, 2025
Tax on tips	Tax exclusions for service tips up to $25,000 in a taxable year. Deduction is reduced by $100 for every $1,000 over $150,000 in adjusted gross income.	January 1, 2025
5250 programs	Includes an exclusion for employer payments of student loans up to $5,250 and adjusted for inflation starting in tax year 2027.	January 1, 2026
Additional tax measures	Provides tax credit for contributions of individuals to scholarship granting organizations.	January 1, 2027

 

Impact on Institutions of Higher Education and Students

The Act will have wide ranging implications for institutions of higher education and student borrowers. Changes to the federal financial aid programs will significantly impact federal borrowing options for higher education, particularly for graduate and professional school students. For programs that cost more than the new loan limits, students will need to seek additional funding options that may include private loans. Unfortunately, private loans may not be available to students with lower credit and/or other adverse credit factors. Some programs will likely experience enrollment declines as a result of this change.

Additionally, the Act makes significant reforms to repayment programs for borrowers. Under the new plans, borrowers must choose between the RAP or the standard repayment plan (keyed to program length). The RAP requires borrowers to make a minimum payment of at least $10 per month. This could represent an increase for some borrowers because the lowest required monthly payment under the current income-based repayment plan is zero. In addition, the Act changes deferment and forbearance options.

We note that a significant change in the Act is the creation of a new institutional accountability metric based on an earnings premium concept. For undergraduate programs, the metric compares the median earnings of completers four years after program completion with the earnings of working adults with only a high school degree or GED who are not enrolled in higher education. For graduate programs, the metric compares the median earnings four years post-enrollment with the earnings of working adults with only a bachelor’s degree who are not enrolled in higher education. All institutions of higher education must comply with this accountability metric. A program that fails two of three years would lose Direct Loan eligibility. Programs do not lose access to other federal funds, including Pell Grants.

Another important provision in the Act is the inclusion of a regulatory relief provision that allows institutions of higher education to avoid implementing a more onerous and borrower-friendly BDR and closed school discharge rule. As it currently stands, the 2019 final rule is in effect for the BDR and closed school discharge rule. We additionally note that Career Colleges and Schools of Texas v. U.S. Department of Education, 681 F. Supp. 3d 647 (W.D. Tex. 2023), is currently pending with the U.S. Supreme Court and seeks to invalidate the 2022 final rules for the BDR and closed school discharge rule.

Finally, the long-awaited creation of the Workforce Pell Grant program is included in the Act and expands Pell Grants to short-term programs that meet the required criteria. This expansion of the Pell Grant Program was largely a bipartisan effort and has been introduced in a number of different forms over the past several congressional cycles. It will provide new revenue opportunities for institutions of higher education and increased opportunities for students pursuing short-term, career-focused programs. Institutions should evaluate programs that are potentially eligible and ensure that they can meet the required outcome metrics.

Next Steps

Following the negotiated rulemaking sessions, the Department will publish guidance to advise institutions and students on the transition to the new loan programs and new loan repayment options. The rulemaking process will also provide more detail on the implementation of the accountability and Workforce Pell programs, among other changes in the Act. Duane Morris attorneys will continue to provide updates as information is available.

For More Information

If you have any questions about this Alert, please contact any of the attorneys in our Higher Education Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.