Issue Briefs

Student Loans

The federal loan programs, authorized under Title IV of the Higher Education Act of 1965, are the largest source of financing for higher education, with total student loan borrowing having reached $1.7 trillion. In 2025, the One Big Beautiful Bill Act enacted the most sweeping restructuring of federal loan eligibility, limits, and repayment in decades, with most changes taking effect July 1, 2026.

About

The One Big Beautiful Bill Act (OB3) reshaped both borrowing and repayment. On borrowing, it eliminated Grad PLUS loans, set new borrowing caps for students and parents, and replaced most income-driven repayment plans with a new Repayment Assistance Plan (RAP).

Beginning July 1, 2026, Parent PLUS loans are capped at $20,000 per year and $65,000 lifetime per dependent student. Graduate borrowing is also capped: most programs at $20,500 annually with a $100,000 aggregate maximum, while students in professional programs such as law and medicine may borrow up to $50,000 annually and $200,000 in aggregate. Borrowing limits are prorated for less-than-full-time enrollment, and legacy provisions generally let already enrolled students that have received loans before July 1, 2026, borrow under prior rules for up to three additional years or until they finish their program.

On repayment, Direct loans first disbursed on or after July 1, 2026, will be eligible for only two repayment plans: a restructured Standard plan with a 10-to-25-year term or the new income-driven Repayment Assistance Plan (RAP) with a 30-year term. RAP sets payments at 1% to 10% of adjusted gross income (or a flat $10 per month if income is under $10,000 per year). Legacy plans, such as ICR, PAYE, REPAYE, and SAVE, remain available temporarily only for loans originated before that date, and borrowers must move to IBR, RAP, or a fixed plan by 2028, defaulting to RAP otherwise SAVE is being wound down through a court settlement.

History

Federal student loans date to the Higher Education Act of 1965, though early models involved the federal government guaranteeing bank-originated loans rather than the current system of direct federal lending. Grad PLUS and Parent PLUS were created later on, with the intent of providing federal lending up to the full cost of attendance.

After the pandemic payment pause and the litigation that blocked the Biden-era SAVE plan, OB3 was enacted in July 2025. Implementation ran through the Department's Reimagining and Improving Student Education (RISE) negotiated rulemaking, which reached consensus on the full package of 17 provisions in November 2025, with a proposed rule in early 2026, final rules in spring 2026, and an effective date of July 1, 2026.

  • Identify which of your graduate and professional programs fall outside the "professional" definition and model the financing gap students will face under the lower caps.

  • Counsel current borrowers on legacy provisions and the 2028 deadline to move off ICR/PAYE/SAVE and review entrance/exit counseling to reflect the new RAP and Standard plans.

In the News

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