On July 4, 2025, President Trump signed the Budget Reconciliation Act, initiating significant reforms across federal financial aid programs. While several controversial provisions were removed before final passage—thanks in part to advocacy from higher ed organizations like NASFAA—the legislation still introduces sweeping structural changes to federal student aid that will take effect beginning July 1, 2026, with some policies phasing in by 2027 and 2028.
The following summary highlights the most important changes that financial aid administrators must prepare for, particularly as they relate to federal student loan eligibility, Parent and Graduate PLUS loans, repayment plans, Pell Grant programs, and institutional risk.
Key Changes to Federal Loan Programs
Elimination of the Graduate PLUS Loan Program
- Effective July 1, 2026, no new Graduate PLUS loans may be disbursed.
- Current borrowers will be able to continue borrowing under legacy rules through the completion of their current program.
Introduction of Graduate Loan Caps
- Annual limits:
- $20,500 for graduate students
- $50,000 for professional students
- Aggregate caps:
- $100,000 for graduate students
- $200,000 for professional students
New Limits on Parent PLUS Loans
- $20,000 annual cap and $65,000 lifetime limit per dependent student, effective July 1, 2026.
- Parents are not required to wait until their student has borrowed their maximum unsubsidized loan before taking a PLUS loan.
Total Federal Loan Borrowing Cap
- New lifetime borrowing cap of $257,500, excluding Parent PLUS borrowing.
Institutionally-Determined Loan Limits
- Institutions may set their own program-level loan caps, giving schools more control over debt management.
- Effective July 1, 2026.
Loan Proration for Part-Time Students
- Schools must prorate annual loan limits based on a student’s enrollment status if less than full-time.
Changes to Repayment Plans
New Repayment Framework for Borrowers with Loans Disbursed After July 1, 2026
Eligible only for:
- Standard Plan (fixed payments, 10–25 years based on total debt)
- Repayment Assistance Plan (RAP) – a new income-driven repayment (IDR) plan
What RAP Includes
- Minimum monthly payment of $10
- Payment based on AGI and family size
- Income and dependents assessed individually for married borrowers who file taxes separately
- Borrowers can switch out of RAP (the restriction in earlier drafts was removed)
- Borrowers with no or low AGI must submit documentation for income recalculation
Current Borrowers (Pre-2026 Loans)
- Can continue using existing plans: Standard, IBR, Graduated, Extended
- Must transition out of ICR, PAYE, or SAVE by July 1, 2028
- If no selection is made, borrower will be auto-enrolled in RAP
Income-Based Repayment (IBR) Revisions
- Removes the requirement for demonstrating partial financial hardship to qualify
- Retains the monthly cap equal to Standard 10-year repayment amount
- Loan forgiveness remains after 25 years of payments
Pell Grant Program Reforms
Pell Grant Eligibility Updates
- Pell eligibility denied to students whose Student Aid Index (SAI) exceeds twice the max Pell award
- Students receiving scholarships or grants covering 100% of COA remain ineligible for Pell, even if otherwise eligible
- Foreign income must now be included in income calculations for Pell
Pell Grant Status Quo Maintained
- Retains Pell LEU calculation method (no reduction unless Pell is actually received)
- Retains less-than-half-time eligibility
- Retains 24-credit hour definition of full-time
- $10 billion in additional Pell funding included for FY 2026
New Workforce Pell Grant Program
- Excludes remedial, non-credit, English language, and study abroad coursework
- Unaccredited providers are not eligible
- Provides a pathway to short-term, workforce-aligned programs
Deferments, Discharges, and Protections
Deferments
- Economic Hardship and Unemployment Deferments eliminated for loans disbursed on or after July 1, 2027
Closed School and Borrower Defense Rules
- 2022 Biden-era borrower protection rules are delayed (not repealed)
- Will not apply to loans originated before July 1, 2035
Student Eligibility & Needs Analysis
Student Eligibility Remains Broad
- Proposed cuts to non-citizen categories for Title IV eligibility were struck from the final law
Needs Analysis
- Median Cost of College (MCOC) formula changes were removed
- Family farms and small businesses are again exempt from SAI
- Expanded to include family-owned fisheries\
Institutional Accountability & Program Risk
New Accountability Measures for Programs
- Effective July 1, 2026, federal aid eligibility depends on graduate earnings:
- Undergrad programs: Must exceed median earnings of adults with only a high school diploma
- Graduate programs: Must exceed median earnings of adults with only a bachelor’s degree
- Failing for 2 of 3 consecutive years results in loss of Direct Loan eligibility
- One-year failure requires schools to disclose risk to current and prospective students
- Schools can reapply after two years
No Risk-Sharing or 90/10 Changes
- Institutional risk-sharing model was removed
- 90/10 rule and gainful employment language remain intact
Other Provisions
Endowment Tax Exemption
- Institutions with fewer than 3,000 students are exempt from the new endowment tax
What to Do Now
While most changes take effect in 2026 and beyond, preparation must begin now. This includes:
- Reviewing your institutional lending policies to assess whether program-level caps are warranted
- Updating counseling materials to reflect upcoming changes to repayment, loan limits, and eligibility
- Training staff to speak confidently about RAP, Graduate PLUS elimination, and new Pell requirements
- Preparing your IT and financial aid systems for compliance and packaging updates in advance of the deadlines
Want to learn more about how HEAG can support your team through these updated changes and updates to remain effective and compliant? Contact us at info@heag.us or visit heag.us to explore our staffing solutions tailored to meet your institutional needs.
