Important Updates: Once Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, making significant changes to the federal student financial aid programs effective July 1, 2026.
The information reflects the most current guidance available but is subject to change.
The following changes are effective as of July 1, 2026, for families filling out the 2026/2027 Free Application for Federal Student Aid (FAFSA).
Updates to the Federal Pell Grant Program
- Foreign earned income will be included in the Adjusted Gross Income (AGI) used to calculate Pell Grant eligibility.
- Students with SAI’s greater than twice the maximum Pell Grant amount ($14,790 for the 2026/2027 award year) will be ineligible for a Pell Grant.
- Students who receive grants / scholarships from non-federal sources up to the full Cost of Attendance (COA) of their program will not be eligible to receive a Pell Grant.
- The bill provides approximately $10 billion in mandatory funding to address the impending Pell Grant Shortfall. For the 2026/2027 award year, the maximum Pell Grant will remain $7,395 per year.
Updates to the Federal Direct Loan Program
New Federal Loan Program Lifetime Limits
The bill places a $257,500 lifetime borrowing limit on all federal student loans, excluding borrowed Parent Plus LOAN amounts (in the case of a dependent student who had a Parent PLUS borrowed on their behalf for education expenses).
Legacy Provision: If a borrower has a Federal Direct Loan made before July 1, 2026, while enrolled in a credentialed program of study, the borrower can continue to borrow under current loan limits for three (3) academic years or until the end of their program of study, whichever comes first.
Proration of Loans Based on Full-time or Part-time Enrollment
New borrowers enrolled less than full-time (12 credit hours) will only be able to borrow loan amounts in direct proportion to their enrollment status. This means that students who take less than 12 credit hours will have their loan reduced based on how many credits they take.
For example, if a student is enrolled 3/4 time for fall and spring, they will only receive 75% of the normal yearly loan limit.
The loan proration applies to everyone:
- Undergraduate students (excluding Parent PLUS loans borrowed on behalf of a dependent student)
- Students who qualify for legacy loan limits will also be included under this rule
A student’s enrollment will be checked before each loan disbursement. If a student drops below full-time after receiving a loan payment, that payment may not change.
However, future loan payments could be reduced.
There has been no change in the minimum hour requirement for federal student loans. Students must still be enrolled half-time to be eligible. Half-time is 6 hours for undergrad students.
New Parent PLUS Annual & Aggregate Loan Limits
Beginning July 1, 2026, parents will only be permitted to borrow up to $20,000 per year per dependent student and a $65,000 aggregate limit per dependent student. These limits apply to all parents of a student, so the maximum amount a student may receive in a year is $20,000, with an aggregate limit across all years of $65,000, regardless of
whether one or more parents are borrowing on the student’s behalf. This is a change from the current law, which allows parents to borrow up to the full cost of attendance per child.
Legacy Provision: If a student has a Parent PLUS Loan disbursed before July 1, 2026, while the dependent student is enrolled in a credentialed program of study, the parent can continue to borrow from the Parent PLUS Loan program for three (3) academic years or until their dependent student reaches the end of their program of study, whichever comes first.
Updates to Student Loan Repayment
New Repayment Assistance Plan (RAP)
The bill creates a new Income-Based Repayment (IBR) plan called the Repayment Assistance Plan (RAP).
- If married filing separately, spouse’s AGI and number of dependents are not included in the payment calculation
- $10 minimum payment
- Monthly payment is 1-10% of income based on AGI
- $50 off monthly payment (base payment) per dependent30-year repayment period
- Eliminates negative amortization
- No cap on monthly payment
- If a borrower makes an on-time payment that reduces their principal by less than $50, ED will make a payment to the principal, up to the amount paid, minus what was applied to the principal or $50, whichever is less.
After all current borrowers move out of all other current Income-Driven Repayment plans or Standard plans, the current plans will be sunset.
New Standard Repayment Plan
The bill creates a new standard plan with 4 fixed terms of 10, 15, 20, or 25 years based on the amount borrowed (or outstanding balance if in repayment).
Changes to Current Income Based Repayment (IBR) Plan
The bill removes the requirement for borrowers to demonstrate a partial financial hardship. It also retains cancellation for balances of loans repaid under IBR at 25 years, or 20 years for new borrowers, and allows for covered income contingent loans to be repaid under IBR.
Repayment Plans for New Borrowers
Borrowers with new loans made on or after July 1, 2026 can be repaid using only two plans: a new Standard Repayment Plan and the new IBR plan, the RAP. If a borrower with new loans made on or after July 1, 2026 does not select a plan, they will be assigned to the new Standard Repayment Plan.
All loans must be paid under the same repayment plan, so borrowers with loans made before July 1, 2026, who take out additional loans on or after July 1, 2026, will only have the RAP and the new Standard Repayment Plan as options.
Repayment Plans for Current Borrowers
Current borrowers with no new loans made on or after July 1, 2026, are eligible to enroll in the current Standard, Graduated, Extended, or current IBR repayment plans, and may also opt in to the new RAP. Current borrowers may also switch between, enter or remain on existing Income-Driven Repayment plans until July 1, 2028.
Current borrowers enrolled in Income-Contingent (ICR), Pay As You Earn (PAYE), or Saving on a Valuable Education (SAVE) plans must transition to a different repayment plan (current IBR, current standard plans, or RAP) by July 1, 2028. If no selection is made by that date, they will be moved into the RAP automatically.
Repayment Options for Parent PLUS
All new Parent PLUS loans from July 1, 2026 on must be repaid under the standard repayment plan and are not eligible for RAP. If a borrower chooses RAP, but has a loan that is not eligible for RAP (like Parent PLUS and certain consolidated loans) they must repay the ineligible loan(s) separately.
Repayment Options for Consolidation Loans
Consolidation loans made on or after July 1, 2026, are only eligible for the RAP or standard repayment plans.
A consolidation loan (subsidized or unsubsidized) taken out by a borrower before July 1, 2026, is treated like any other eligible loan. Borrowers currently in an Income-Driven Repayment plan have until July 1, 2028, to select a standard plan, IBR, or RAP.
If the consolidation loan was used to pay off a Parent PLUS loan, it must enter repayment under Income-Contingent Repayment plan before July 1, 2028, to become eligible for IBR.
If the borrower takes no action by July 1, 2028, all eligible loans will be automatically moved to RAP, and any loans not eligible for RAP will be placed into IBR.
Changes to Loan Rehabilitation Terms
Borrowers can rehabilitate a defaulted loan twice, instead of once as currently allowed. The minimum rehabilitation payment for Direct Loans changes to $10.
Changes to Loan Deferment Options
The bill sunsets the economic hardship and unemployment deferments.
Borrowers with loans made on or before July 1, 2027, are still able to use these deferment options under the current rules. Once all borrower’s loans made prior to that date are paid in full, these options will cease to exist.
Changes to Loan Forbearance
Loans made on or after July 1, 2027, are eligible for forbearance for up to nine months in any two-year period.
The current rules allow for a forbearance up to 12 months at a time, with a cumulative limit of three years.