Trump's New Bill Restructures Federal Student Loan Limits, Impacts Repayment Options

The recently signed "One Big Beautiful Bill" by President Trump introduces substantial reforms to federal student loan policies, impacting current and prospective borrowers across the United States. One of the most significant changes brought by the legislation is the imposition of new borrowing limits and the restructuring of repayment options for student loans. A major highlight includes the closure of the previous graduate PLUS program, effective July 1, 2026. This decision eliminates the borrower's ability to take out loans up to the full cost of their graduate education, replacing it with an annual cap of $20,500 and a lifetime limit of $100,000 for graduate student loans. For students in professional programs such as law or medicine, borrowing caps are set at $50,000 per year with a lifetime limit of $200,000.

Parent PLUS Loans, historically used by parents to financially support their children's undergraduate studies, will also see restrictions with an annual limit of $20,000 and a cumulative limit of $65,000 per child. Additionally, the overall lifetime borrowing limit for both undergraduate and graduate federal loans has been capped at $257,500 per individual.

The changes further extend to repayment plans, significantly reducing the options available to borrowers. The bill stipulates the phasing out of most existing plans, including the widely favored, generous SAVE plan, and introduces only two options for new borrowers after July 1, 2026. Borrowers will have the choice between a redefined income-based repayment plan, demanding minimum payments of $10 monthly with loan forgiveness available after a 30-year period, or a new standard repayment plan with fixed durations spanning 10 to 25 years based on the total debt. This drastic reduction in flexibility is expected to stir confusion among current borrowers as well as loan servicers, as it represents a stark shift from the borrower-friendly policies of previous administrations.

For Pell Grants, which are critical in supporting low-income students, the bill expands eligibility to include job-training programs starting in July 2026. However, students holding full-ride scholarships will be excluded from Pell Grant eligibility under the new law.

The "One Big Beautiful Bill" also enacts an accountability measure for educational institutions linked to the financial success of their graduates. Colleges will face the risk of losing eligibility for federal loans if graduates from specific undergraduate programs earn less than individuals with only a high school diploma. This criterion, aimed at enhancing the return on investment in education, is poised to profoundly affect two-year associate degree programs, although community college attendees typically rely less on federal loans.

Furthermore, a heightened tax on college endowments is introduced, raising the rate to a scale of up to 8% depending on endowment size. This measure affects institutions like Harvard University, which with a formidable endowment, enters the highest tax bracket.

Adding complexity to the evolving student loan landscape, recent efforts seek to undermine the Biden-era student loan relief measures. The previously functioning SAVE plan, which allowed deferred payments without interest accrual for federal borrowers, is poised to expire, necessitating enrollees to resume payments or face rising debts from renewed interest charges. The expiry of this plan could see monthly bills increase significantly for affected individuals, pushing many closer to default.

Overall, the new legislation aims to provide a more streamlined federal student loan system while cutting down government expenditure. However, the realignment in access and support risks impacting not only borrowers from underserved communities but also the broader goal of higher education access and affordability. By potentially encouraging reliance on private student loans, the reforms may inadvertently exacerbate disparities and challenge students' aspirations across the economic spectrum.