One Big Beautiful Bill Act- Working Family Tax Cut Act:

What’s Changing for 2026-2027 Federal Financial Aid?

The One Big Beautiful Bill Act  (Working Family Tax Cut Act) introduces major changes to federal student aid beginning July 1, 2026. These updates impact federal student loans, repayment plans, Parent PLUS loans, graduate borrowing, and Pell Grant eligibility.

Federal Student Loan Changes

  • Loan Proration
  • New Loan Limits
  • Elimination of Graduate Plus Loan

Federal Loan Repayment Options

  • Changes to Loan Terms
  • Changes to Repayment Plans
  • Available Repayment Plans
  • Parent PLUS Loan Repayment Options

Federal Pell Program

  • Pell Grant Eligibility

Section 1: Federal Student Loan Changes

Legacy provisions exist for many of these loan changes. However, transferring schools, switching majors, or other academic changes may affect your ability to be included in these legacy limits. Please reach out to our office to discuss the implications of any adjustments to your academic career.

Am I a new or active borrower?

All loans must be paid under the same repayment plan, so whether you are a current or new borrower depends on how many loans you have taken out and when.

New borrower: A student with no loans taken out prior to July 1, 2026 or all loans taken out during that time have been paid in full.

Active borrower: A student is enrolled in a program of study at an institution as of June 30, 2026; and a direct loan was made for such program of study prior to July 1, 2026 which has not been paid off.

Elimination of Graduate PLUS Loans

Effective July 1, 2026, the Graduate PLUS Loan Program has been discontinued entirely for all new borrowers. Graduate PLUS Loans currently allow graduate students to borrow up to the Cost of Attendance for the academic year.

If a student has an active federal student loan of any kind that was disbursed before July 1, 2026 while enrolled in a qualifying program, the borrower may continue borrowing under previous loan limits for three academic years or until the student completes their program, whichever is sooner.

Note: Changing programs, taking a leave of absence or other enrollment changes may affect your ability to be included in the legacy provision.

Loan Proration

Beginning July 1, 2026, loan limits will be prorated depending on enrollment level, similar to grant funding. This means new borrowers enrolled less than full time will only be able to borrow loan amounts in direct proportion to their credit load, with a minimum half-time enrollment requirement.

We expect to receive further information from the Department of Education regarding exact proration amounts.

New Loan Limits

Effective July 1, 2026, the One Big Beautiful Bill enacts a $257,500 lifetime borrowing limit on all federal student loans, total. This does not include Parent PLUS loans, which are borrowed by parents on their student’s behalf.

Legacy Provision

You may borrow under current loan limits if you have had a federal student loan disburse before July 1, 2026 while enrolled in a qualified program of study. This legacy provision lasts for three years or until you complete your qualified program of study, whichever comes sooner.

The following loan limits apply to all student borrowers who are not already active borrowers under the federal student loan program:

  • Graduate Students:$20,500 annual; $100,000 aggregate
  • Professional Students:$50,000 annual: $200,000 aggregate
  • *Graduate/Professional combined total:$200,000

*The individual graduate and professional limits do not reset when you begin a new degree or program and there is a $200,000 total aggregate limit. For example, a student who borrows the total aggregate $120,500 to complete their graduate degree will only have $79,500 left in eligibility should they later decide to enroll in a professional program.

Legacy Provision

You may borrow under current loan limits if you have had a federal student loan disburse before July 1, 2026 while enrolled in a qualified program of study. This legacy provision lasts for three years or until you complete your qualified program of study, whichever comes sooner.

Beginning July 1, 2026, Parent PLUS loans will be capped at $20,000 per year with a $65,000 aggregate limit. Previously, Parent PLUS Loans had no cap and could be taken out for whatever amount was needed to get the student up to Cost of Attendance.

  • These limits are per dependent student, meaning parents with multiple dependent students can take out these limits in total for each student.
  • The number of parent borrowers does not change the limits, as they are tied to the student. So if a student has two parents who wish to borrow on their behalf, no more than $20,000 per year and $65,000 total may be taken out.

Legacy Provision

If a student has received a Parent PLUS Loan disbursement before July 1, 2026 while enrolled in a qualifying program, the parent borrower may continue borrowing Parent PLUS Loans under previous loan limits for three academic years or until the student completes their program, whichever is sooner.

Section 2: Federal Student Loan Repayment Options

Changes to Loan Terms

For questions regarding your loan repayment, please contact your loan servicer directly. You may look up your loan service on studentaid.gov.

Currently loan forbearance is allowed for up to 12 months at a time with a cumulative limit of 3 years. For loans originated on or after July 1, 2027, forbearance is allowed for up to nine months in any two-year period.

Economic hardship and unemployment deferments will be phased out. Borrowers with loans made on or before July 1, 2027 may still utilize economic hardship and unemployment deferment options until those loans are paid in full.

Borrowers may now rehabilitate a defaulted loan twice (currently only one rehabilitation is allowed). The minimum rehabilitation payment for direct loans changes to $10.

Changes to Repayment Plans

The bill creates a new Income-Based Repayment (IBR) plan called the Repayment Assistance Plan (RAP).

  • $10 minimum payment
  • Monthly payment is 1-10% of income based on AGI (Adjusted Gross Income)
  • Base payment reduction of $50 per dependent
  • 30-year repayment period
  • Eliminates negative amortization
  • No cap on monthly payment (even if it’s higher than the standard repayment plan would be)
  • 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.

Current borrowers may continue on previously established Income-Driven Repayment plans or Standard plans through July 1, 2028.

A new Standard plan is available with four fixed terms of 10, 15, 20, or 25 years, based on the amount borrowed (or outstanding balance if in repayment).

Borrowers are no longer required to demonstrate a partial financial hardship. Cancellation for balances of loans repaid under IBR at 25 years, or 20 years for new borrowers is retained, and covered income contingent loans may be repaid under IBR.

Available Repayment Plans

Current borrowers with no new loans made on or after July 1, 2026, are eligible to enroll in:

  • Current Standard Repayment Plans
  • Current Graduated Repayment Plans
  • Current Extended Repayment Plans
  • Current Income-Based Repayment Plans
  • The new Repayment Assistance Plan
  • , 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.

As a current borrower, you may also switch between or remain on existing IBR plans until July 1, 2028.

What if I’m on a different repayment plan?

Borrowers currently enrolled in any of the following repayment plans must transition to one of the current IBR plans, current standard plans, or RAP by July 1, 2028.

  • Income-Contingent (ICR)
  • Pay As You Earn (PAYE)
  • Saving on a Valuable Education (SAVE)

If you do not transition by July 1, 2028, you will be automatically moved into RAP.

Borrowers with new loans made on or after July 1, 2026 have only two plan options:

  • The new Standard Repayment Plan
  • The new Income-Based Repayment Plan (RAP)

If you do not select a plan by July 1, 2026, you are automatically assigned to the new Standard Repayment Plan.

Parent PLUS Loan Repayment Options

All Parent PLUS loans taken out on or after July 1, 2026 are only eligible for the Standard Repayment Plan. These new loans are not eligible for RAP.

Consolidated Loan Repayment Options

Consolidation loans made on or after July 1, 2026, are only eligible for the RAP or Standard Repayment plans.

Consolidation loans (subsidized or unsubsidized) taken out before July 1, 2026, are treated like any other eligible loan. If you are currently in an Income-Driven Repayment plan, you have until July 1, 2028, to select a Standard Plan, IBR, or RAP.

For consolidation loans used to pay off a Parent PLUS loan: The consolidation loan must enter repayment under the IBR plan before July 1, 2028, to become eligible for IBR.

Reminder: If you take no action by July 1, 2028, all eligible loans will be automatically moved to RAP if eligible and IBR if not.

Section 3: Federal Pell Grant Program

Federal Pell Program

The following Pell changes take effect beginning July 1, 2026:

  • Students meeting or exceeding their full Cost of Attendance with scholarship/waiver aid will not be eligible for any amount of Pell Grant.
    • This is a change from previous regulations, which allowed students in some circumstances to be fully funded with scholarship aid and still received their Federal Pell Grant on top.
  • Students whose Student Aid Index (SAI) is at least two times the current Pell Grant maximum of $7,395 will not be eligible for the Pell Grant. Example: For 2024-25, that would equal an SAI of $14,790.