College Funding & Student Loans After the OB3: What Parents and Students Should Know

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, represents one of the most significant overhauls to federal student aid in decades. While some provisions took effect immediately upon enactment, many of the most impactful changes to federal student loans, borrowing limits, and repayment options became effective on July 1, 2026, with additional changes scheduled to roll out over the coming years.

Whether you currently have student loans, are attending college, or are planning for a child's future education, these changes could have a meaningful impact on your financial decisions. Rather than walking through every provision of the law, I'll focus on the changes I think are most likely to affect families and what they may mean when you're making decisions about paying for college. Understanding these changes can help you make more informed decisions about saving, borrowing, and planning for the cost of higher education.

Pell Grant Changes

Starting with the 2026–2027 academic year, several changes to the Pell Grant program will make it more difficult for some students to qualify for this valuable source of financial aid.

Perhaps the most significant change is the reduction in the maximum annual Pell Grant award, which decreased from $7,395 to $5,710. For students who rely on Pell Grants to help pay for college, that's nearly $1,700 less in grant funding each year.

Eligibility requirements have also become more restrictive. Students with a Student Aid Index (SAI) greater than $14,790 (twice the maximum Pell Grant award) are no longer eligible. In addition, assets now play a larger role in determining eligibility, meaning some students from lower-income families with significant savings or investments may no longer qualify. Foreign income must also be included when calculating eligibility, which could affect families with income earned outside the United States.

Another important change affects students whose education is fully funded through non-federal aid. If scholarships, institutional grants, or other non-federal assistance cover a student's full cost of attendance, that student will generally no longer qualify for a Pell Grant. This provision is expected to primarily affect students on full scholarships, including some student-athletes.

On a more positive note, the Pell Grant program is also expanding. Students enrolled in certain short-term, career-focused training programs will now be eligible for Pell Grants, opening the door to financial aid for many workforce development and certificate programs.

What this means for families: With smaller grant awards and stricter eligibility requirements, some students may need to rely more heavily on scholarships, 529 savings, family contributions, or student loans to help cover the cost of college. Planning ahead has become more important than ever.

Federal Student Loan Proration for Part-Time Students

Beginning with the 2026–2027 academic year, federal Direct Loans will be prorated for students enrolled less than full-time. This means your annual federal loan limit will be reduced based on your enrollment. Rather than receiving the maximum annual loan amount, your eligibility will be adjusted proportionately to the number of credits you're taking. For undergraduate students, full-time enrollment is considered 12 credit hours per semester, or 24 credits over the academic year (fall and spring). For graduate students, full-time enrollment is 9 credit hours per semester, or 18 credits over the academic year. Students who enroll below these thresholds will receive a reduced federal loan amount.

For example, if an undergraduate student enrolls in 12 credits in the fall and 9 credits in the spring, they would complete 21 of the 24 credits considered full-time for the academic year. As a result, they would be eligible for approximately 87.5% of the standard annual federal Direct Loan limit. This change will have the greatest impact on students who attend school part-time while working, caring for family members, or balancing other responsibilities. In the past, some students borrowed more than the cost of tuition and fees to help cover living expenses such as housing, transportation, and other out-of-pocket costs. With prorated loan limits, that flexibility may be reduced, making scholarships, grants, savings, and other financial resources even more important.

It's also important to note that this change applies only to federal Direct Loans borrowed by students. Parent PLUS Loans are not subject to loan proration, although they are now subject to separate borrowing limits under the OBBBA.

Parent PLUS Loans Are No Longer Unlimited

One of the most significant changes under the OBBBA affects Parent PLUS Loans. Beginning July 1, 2026, parents can borrow up to $20,000 per year and $65,000 total per dependent student. A temporary exception allows certain students who were already enrolled before July 1, 2026, to continue borrowing under the previous rules, provided they meet specific eligibility requirements and remain continuously enrolled in the same program.

Previously, many families relied on Parent PLUS Loans to help cover tuition costs that exceeded other forms of financial aid. With lower borrowing limits, families may need to increase college savings, maximize scholarships and grants, consider more affordable schools, or reduce their reliance on student loan debt.

Graduate and Professional Student Loan Changes

Beginning July 1, 2026, the Graduate PLUS Loan program will be eliminated for new borrowers, removing a financing option that many students have relied on to cover the full cost of graduate and professional school.

Instead, students will be subject to new federal borrowing limits based on the type of degree they are pursuing:

• Graduate degree programs: The annual Direct Unsubsidized Loan limit remains $20,500, with a new $100,000 aggregate borrowing limit for graduate education.

• Professional degree programs: The annual Direct Unsubsidized Loan limit increases to $50,000, with a new $200,000 aggregate borrowing limit. Professional degree programs include medicine, dentistry, law, pharmacy, veterinary medicine, optometry, osteopathic medicine, podiatry, chiropractic, clinical psychology, and certain theology programs.

For both graduate and professional students, there is also a new lifetime federal Direct Loan limit of $257,500 (excluding Parent PLUS Loans and previously borrowed Graduate PLUS Loans).

A temporary grandfathering provision allows certain students who were already enrolled before July 1, 2026 to continue borrowing under the previous rules, including access to Graduate PLUS Loans, if they remain continuously enrolled in the same program at the same institution and received a qualifying federal student loan for that program before July 1, 2026. This exception is available only while the student completes their current program, for up to three years.

Students considering graduate or professional school should carefully compare program costs, explore scholarships and assistantships, and understand how much they'll need to borrow before committing to a program. The elimination of Graduate PLUS Loans means financing high-cost degrees may require more advanced planning than in the past.

Repayment Options for New Federal Student Loan Borrowers

The OBBBA significantly restructures federal student loan repayment. Borrowers who receive a new federal student loan on or after July 1, 2026, will generally have two repayment options: the Repayment Assistance Plan (RAP) or the new Standard Repayment Plan. Existing borrowers enrolled in plans such as SAVE, PAYE, or Income-Contingent Repayment (ICR) will also transition to the new repayment system over time.

If you were enrolled in the SAVE Plan, your enrollment ended on July 1, 2026. You have 90 days to select a new repayment plan. If you do not make a selection, the Department of Education will automatically place you into a repayment plan. Because your repayment plan determines your monthly payment and overall repayment strategy, it's important to review your options before that deadline.

Repayment Assistance Plan (RAP): RAP is an income-based repayment plan designed to keep monthly payments affordable. Payments are based on a percentage of your income and include protections for lower-income borrowers, making it an attractive option for those with fluctuating earnings or limited cash flow.

Standard Repayment Plan: The Standard Repayment Plan uses fixed monthly payments designed to pay off your loans over a set repayment period. While monthly payments are often higher than under RAP, borrowers typically pay less interest over time and eliminate their debt sooner.

There is no one-size-fits-all repayment plan. The right choice depends on your income, loan balance, career goals, and whether you're pursuing loan forgiveness. Before selecting a plan, estimate your monthly payment under each option and consider how it fits into your overall financial plan.

529 Plan Expansion

While many of the OBBBA changes reduce borrowing options, one positive change expands how families can use 529 education savings plans. Beginning in 2026, 529 funds can be used tax-free for a broader range of postsecondary credentialing and certificate programs, including certain trade schools, workforce training, and professional licensing programs. This provides greater flexibility for students who choose alternatives to a traditional four-year college degree.

If you're saving for a child's education, a 529 plan may now be an even more valuable tool, as it can help fund a wider variety of postsecondary education and career training pathways.

College Planning Is No Longer About Just Saving

Before OBBB, families often assumed they could borrow whatever they couldn't save. Today, borrowing limits are tighter, repayment options are changing, and parents may no longer be able to rely on federal loans to close the gap. As a result, planning ahead is becoming increasingly important. Starting those conversations early, understanding your funding options, and balancing college goals with retirement security can help families make informed decisions about saving, borrowing, and choosing a school that aligns with their educational goals and overall financial plan.