Changes to Student Loans Under the “Big Beautiful Bill”

Student loan reform is back in the spotlight with the passage of the One Big Beautiful Bill Act (OBBB). This sweeping legislation will dramatically change how students borrow, repay, and manage their educational debt. Here’s a breakdown of the changes to student loans under the Big Beautiful Bill.

Streamlining Repayment Plans

One of the key student loan reforms in the bill is to simplify repayment options. Currently, borrowers can choose from an array of plans: standard repayment, graduated repayment, and several income-driven plans with different rules and timelines.

Under the OBBB, borrowers have two options for the repayment of their federal student loans disbursed on or after July 1, 2026:

• A standard repayment plan (with the length of the repayment term determined by the total amount borrowed); and
• An income-based repayment plan to be known as the Repayment Assistance Plan (RAP)

Existing borrowers on other income-driven plans can choose to stay on those plans or switch to the new payment system by July 1, 2028. However, the SAVE plan is being eliminated. Those on the SAVE plan must choose a new plan or they will automatically be enrolled into an income-based repayment plan.  The new law also eliminates economic hardship and unemployment deferments beginning on July 1, 2025, and reduces the total period a borrower may be in forbearance.

Public Service Loan Forgiveness (PSLF)

The bill does not phase out the PSLF program, however payments are required for 30 years. The OBBB allows payments under RAP to count as qualifying payments for purposes of the PSLF program. Additionally, a public service job will not include time served in a medical or dental internship or residency program.

Any student loan debt forgiven after December 31, 2025, will be considered taxable income at the federal level.

Borrowing Limits and Reduced Benefits

Undergraduate students will no longer receive subsidized loans, and graduate or professional students will no longer receive Direct PLUS Loans beginning on July 1, 2026.  There is an exception (of up to three academic years) for students already enrolled in a program of study and receiving a loan for the program. 

For undergraduate students, the changes mean they will instead receive unsubsidized loans which begin accruing interest from the time of disbursement. Unsubsidized loans increase the cost of education, and results in higher loan payments.

The elimination of the Graduate PLUS program is partially offset by the increase in Stafford loan borrowing limits.  However, there is now a lifetime cap of $100,000 for graduate students and $200,000 for professional students.

There are new restrictions on Parent PLUS Loans as well. Parents may take out a Parent Plus Loan if the dependent student has already borrowed their maximum loan amount. Starting July 1, 2026, parents will be limited to borrowing no more than $20,000 per child each year, with a lifetime maximum of $65,000 per student.

Tax Deduction Remains

Many taxpayers will be pleased that the federal tax deduction for student loan interest remains in place. Borrowers can continue to deduct up to $2,500 in student loan interest paid each year, subject to income limits.

What Comes Next?

The changes to borrowing from the federal government will likely push more students and parents toward private loans. Many borrowers already carry education debt well into retirement. Whether the changes to federal lending will help or hurt remains to be seen.