Recent Changes to Undergraduate Federal Student Aid Programs from the One Big Beautiful Bill

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Michelle Smoley, AFC®, MBA

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Fall is the season of change. We experience changes in temperature; the color of the leaves and many young adults are headed to or back to college. As most college students are back on campus, it is important to understand changes to federal Student Aid Programs from the One Big Beautiful Bill. This bill was passed on July 4, 2025, and while there were a few changes implemented immediately, many of these changes did not become effective until July 1, 2026.  Here is a rundown of what current undergraduate college students and their parents/guardians need to be aware of:   

Federal Pell Grant Eligibility 

Students enrolled in an eligible workforce education program are now eligible for the Federal Pell Grant Program. These short-term programs, generally 8 to 14 weeks of instruction, provide education for in-demand and high-skill industry sectors or occupations.  

Federal Loan Borrowing Limits 

There were no changes to current federal direct student annual or aggregate borrowing limits. College freshmen may still borrow up to $5,500; sophomores may borrow up to $6,500, and college juniors and seniors up to $7,500 each year.  

Federal Parent PLUS Loan borrowing amounts have been implemented for the first time. A parent may borrow up to $20,000 per academic year up to an aggregate amount of $65,000 for each dependent’s undergraduate education.  

Previous federal Parent PLUS borrowers, who borrowed before July 1, 2026, are grandfathered in and may borrow up to the total cost of attendance less any other financial aid until academic year 2029-2030.       

Federal Loan Repayment Plan Changes 

Any new federal direct student and parent borrowers defined as those who have not borrowed prior to July 1, 2026, will have access to 2 repayment plans moving forward.    

The Standard Tiered Program offers a fixed, predictable monthly payment where repayment term is based on total amount borrowed. The repayment term minimum is 10 years with a maximum repayment term of 30 years.  

The Repayment Assistant Plan (RAP) offers a tiered monthly payment amount determined by the borrower’s adjusted gross income. Under this plan, a borrower’s minimum monthly payment will be $10 and will be capped at 10% of their AGI for incomes that are $100,000 or greater.  This plan also offers a $50 per month payment deduction per eligible dependent.    

A great benefit to the RAP plan is if the payment amount doesn’t fully cover accrued interest, that interest is waived and up to $50 of your payment is applied directly to principal. This provision means that a borrower’s principal balance will never increase or balloon, which is what many borrowers experience with previous income-driven repayment plans.  

Also, after 30 years (360 payments) under RAP, any remaining unpaid principal balance is cancelled. This sounds great but like current income-driven repayment plans that offer federal loan forgiveness, the amount forgiven is taxed at the federal and state level.   

Additional Federal Loan Provision Updates  

  • Students who borrowed before July 1, 2026, will still have access to prior income-driven (IDR) plans, in addition to the new Repayment Assistance Plan (RAP).  
  • Income-driven payment plans are transferable for current borrowers who move to other income-driven repayment plans.   
  • The current Economic Hardship and Unemployment Deferment is eliminated for all federal loans as of July 1, 2027.  

 

Borrowers will be allowed general forbearance for situations such as illness, financial hardship and natural disasters for up to 9 months in a 24-month time frame.   

As you can see, there are quite a few changes, and this is just for undergraduate-level students and parents/guardians. Change can be challenging to understand and decipher, even for financial professionals. Stay tuned for a follow-up blog post on changes for graduate and professional students from the One Bill Beautiful Bill.   

 

Michelle M. Smoley is an Accredited Financial Counselor® and Director, College & Personal Finance at Bright Horizons College Coach.Visit Michelle’s FindAnAFC profile to learn more about her services and connect with her on LinkedIn.