The landscape for financial aid is about to change.
In 2026, the federal government will curb access to billions of dollars in student loans, reconfigure how borrowers repay their debt, and provide new grant money for short-term career training programs.
All of these changes are slated to take effect in July and are the result of the One Big Beautiful Bill signed into law in summer. The financial aid provisions in the law, which extend tax cuts from President Donald Trump’s first term, will affect how families pay for higher education. Since November, the Education Department has been negotiating the terms of the policies with a panel of experts, as required by Congress. Terms for the new rules will be finalized early this year, with few anticipated changes.
While some higher-education experts say the changes will deliver commonsense reforms, others worry they could discourage college enrollment and persistence. Either way, students entering college in fall 2026 will encounter a very different federal financial aid system.
Here’s what you need to know.
Student loan limits
In one of the largest revisions to federal student loan policy in decades, the Education Department will impose new caps on the amount of money graduate students and parents can borrow from the government.
The Grad Plus program, which lets students borrow up to the full cost of attendance to pay for graduate degrees, will sunset on July 1 for new borrowers. At the same time, people pursuing a master’s degree will have their borrowing capped at $20,500 a year and $100,000 over a lifetime. Those working toward a professional degree — say, an aspiring doctor or lawyer — will be capped at $50,000 a year and $200,000 in total from the federal government.
In all, students will now face a lifetime maximum borrowing limit of $257,500 for undergraduate and graduate school federal loans combined. If those amounts are not enough to cover costs, students will have to pay the rest themselves or turn to private lenders.
The distinction between graduate and professional degree programs has been a lightning rod for controversy. Nurses and others have railed against the Education Department’s proposal to exclude their fields from the higher loan limits. They worry the agency’s move to restrict the professional degree classification to 11 fields will discourage people from enrolling in other advanced degree programs.
The proposal must still be published for public comment before it can be finalized, which allows its detractors to fight for a broader classification.
Researchers say a substantial number of students pursuing master’s degrees will be affected by the new limits. An analysis by the Federal Reserve Bank of Philadelphia found that one-third of graduate students with federal loans have borrowed more than the new limits will allow. Research from the Postsecondary Education & Economics Research at American University found that students in professional programs are more likely to borrow in excess of the new limit.
Beth Akers, a senior fellow at the conservative American Enterprise Institute, said she suspects that many people will be caught off guard by the new constraints on graduate borrowing, and she said colleges are not doing enough to prepare.
“There could be a private-sector solution that covers the gap,” Akers said. “But I suspect that the coordination that’s necessary for that to happen by next fall will probably not happen.”
There have been a lot of conversations among schools about offering institutional loans to help graduate students in need, said Scott Z. Goldschmidt, a partner at the law firm Thompson Coburn who works with higher-education clients. He said colleges are also exploring private loan alternatives and trying to identify scholarship opportunities.
Limits on parents
While the tax bill left undergraduate loan limits intact, it will affect how much parents can borrow to support students working toward an associate’s or bachelor’s degree.
Parents and caregivers could previously take out as much as their child needed to attend college through the Parent Plus program, which is designed as a supplement when other types of student aid have been exhausted. Starting July 1, the program will set new limits of $20,000 a year, or a total of $65,000 per student.
Because relatively few families use Parent Plus loans, researchers at the think tank Urban Institute estimate that the new limits will affect just 2% of students. Still, among families who rely on the loans, nearly a third will be affected by the annual cap, and 17% will run up against the $65,000-per-child total cap.
“It will have a significant impact on a small number of people, and it will be people who we’re particularly concerned about, like disadvantaged populations who tend to use those resources the most,” Akers said.
She hopes that colleges will provide more financial aid to lower the cost for students.
Current borrowers are exempt from both of the new caps for three years.
Fewer repayment plans
The federal student loan repayment system is notoriously complex, with a multitude of options and terms that can be difficult to navigate. Instead of having seven repayment plans, new borrowers will have just two options after July 1: one standard plan and one new income-driven repayment (IDR) plan, called the Repayment Assistance Plan.
The new standard plan will stretch monthly payments out from 10 to 25 years. The larger the debt, the longer the repayment term. Someone with an outstanding principal of less than $25,000 will repay the debt for no more than 10 years, while a borrower with more than $100,000 in federal loans will be in repayment for up to 25 years.
Payments on the new income-driven plan will be based on a borrower’s total adjusted gross income, ranging from 1% to 10% depending on earnings. The plan cancels the remaining balance after 30 years of payments, instead of the current 20 or 25 years.
Borrowers have to make a minimum monthly payment of $10. Those who make timely monthly payments will have their unpaid interest waived to prevent negative amortization, which happens when payments are not enough to cover the principal and interest. The plan also provides a monthly subsidy of up to $50 to ensure borrowers pay down their principal balance by at least that amount.
An analysis from American University suggests that the principal subsidy could result in faster loan forgiveness for low-income, low-balance borrowers. Still, researchers said they worry that higher payments and a longer time before forgiveness for many low-income borrowers is likely to increase the rate of loan defaults.
People who are currently repaying their loans can remain in any of the three existing plans that are not tied to income. Current borrowers on an income-driven plan can stay put until July 1, 2028, at which time they can switch to RAP or the original Income Based option. That income-based plan will give Parent Plus borrowers, who are barred from the new IDR plan, a repayment option tied to their earnings.
There are some complications in consolidating the repayment plans. Congress gave borrowers enrolled in the Saving on a Valuable Education plan three years to exit, but a proposed settlement could speed up the timeline. The Education Department struck a deal in December with seven states to resolve a lawsuit challenging the legality of the Biden-era repayment plan. The agency stressed that enrollees would have a limited time to find another option to repay their debt, but it has not provided an explicit timeline.
“Given what we’ve seen with folks not being able to enroll in plans and being stuck in a backlog … I’m really concerned there’s going to be even more chaos and confusion,” said Michele Zampini, associate vice president of federal policy and advocacy at the Institute for College Access & Success.
Other student advocates worry about whether the Education Department will have revamped the repayment system to reflect all of the changes in time for the graduating class of 2026.
People entering repayment for the first time will need an updated loan simulator, for instance, to select the best repayment plan, said Melanie Storey, president and chief executive of the National Association of Student Financial Aid Administrators. Although newly minted graduates have a six-month grace period before repayment kicks in, she said colleges need to start communicating to students about their options long before then.
“We need information and we need clarity,” Storey said. “My members are the people on the ground who have to answer questions for students, and I’m concerned that given the schedule, we won’t have answers until well into the spring.”
Pell Grant eligibility
There are some significant changes ahead for the Pell Grant, the largest federal grant program for low- and middle-income college students. Chief among them is the expansion of the program to include students enrolling in career training programs that range from eight to 15 weeks in duration. Those programs, which are mainly offered at community and technical colleges, must provide at least 600 hours of instruction.
In December, the Education Department reached a consensus with negotiators on the framework of the policy, dubbed Workforce Pell. The proposal must still be published and finalized, but higher-education experts expect few, if any, changes. It calls for governors to work with state advisory boards to determine program eligibility, with a focus on courses that are in high-demand fields such as nursing aides or emergency medical technicians.
Other new policies could change the number of students eligible for Pell Grants. This summer, the Education Department will exclude assets from family farms, small businesses, and family-owned commercial fisheries from the calculation of the Student Aid Index, or SAI — a figure used to determine a student’s ability to pay for college and the amount of aid they receive.
And some people may no longer be able to get a Pell Grant. The Education Department will begin including foreign income in the calculation of a student’s Pell eligibility, which could reduce eligibility. Furthermore, anyone who receives enough scholarship dollars to cover their full cost of attendance will no longer be eligible to receive Pell.
Students will also be ineligible if their families have lots of assets but appear to have little income in the calculation of SAI. A student previously could qualify for Pell despite their family having a lot of assets if their parents generated business losses that lowered their adjusted gross income. Starting July 1, an SAI that is equal to or exceeds twice the amount of the maximum Pell award will be disqualifying.
