Blog

After a year of rolling policy shocks, the U.S. economy is set to get a lift from President Donald Trump’s tax-cuts package to keep the expansion on track in 2026.

American taxpayers will get bigger refunds in the first half of this year as a result of Trump’s signature bill, economists say, with estimates for the aggregate boost ranging from $30 billion to $100 billion. Incentives for companies to invest in plants and equipment are also likely to bolster growth while lower borrowing costs, and steadier trade policy should help too.

Still, forecasters see grounds for caution. Any burst of consumer spending from Trump’s fiscal stimulus is expected to fade as the year goes on, while tariffs will continue to weigh on small businesses especially. Unemployment is on the rise, as are concerns about affordability and inequality. The AI boom may not deliver the kind of broad-based growth its advocates promise, and the U.S. attack on Venezuela shows the potential for geopolitical instability.

Adding it all up, economists surveyed by Bloomberg in mid-December expected growth of 2% in 2026 — the same as their forecast for 2025. That would likely be enough to extend America’s streak of outperforming its developed-world peers, though it’s a modest pace by past U.S. standards.

“2026 is shaping up to be a decent year — not a boom, not a bust, just solid trend growth,” said Olu Sonola, head of U.S. economic research at Fitch Ratings.

Federal Reserve officials were slightly more optimistic than Wall Street at their meeting last month, penciling in an increase of 2.3% in gross domestic product this year. The central bank’s economic staff cited fiscal policy, easier financial conditions, and a dissipation of the tariff impact as growth drivers through 2028, minutes of the meeting released recently show.

The world’s largest economy weathered the shocks of 2025 better than most pundits predicted. After an initial slump driven by tariff front-running, growth bounced right back — and unexpectedly accelerated to 4.3% in the third quarter, according to numbers eventually published on Dec. 23 after a long delay due to the government shutdown.

“President Trump’s economic agenda unleashed historic job, wage, and economic growth in his first term,” White House spokesperson Kush Desai said in a statement. “The Trump administration is implementing this same agenda of rapid deregulation, working-class tax cuts, full equipment expensing, and energy abundance — accelerating GDP growth and trillions in investment commitments are proof that the best is yet to come in President Trump’s second term.”

‘Helps us invest’

Trump’s legislation extended income-tax reductions and added new exemptions for tips and overtime pay. Refunds will average $300 to $1,000 more than in a typical year, according to the Tax Foundation. In aggregate, economists at Goldman Sachs Group Inc. anticipate an extra $100 billion for consumers in the first half, while Citigroup Inc. put the figure at $30 billion to $50 billion.

A longer-lasting impact will likely come from business incentives, some economists say.

Gregory Daco, chief economist at EY-Parthenon, expects the fiscal package to lift GDP by 0.3% this year. He says some elements of the bill, like cuts in Medicaid and food-aid programs, will be a drag on growth — but reckons they’ll be outweighed by others including higher defense and border-enforcement spending, and measures to help businesses deduct the cost of investments.

Among those anticipating a boost is Gat Caperton, who runs furniture-maker Gat Creek in West Virginia.

“It helps us invest in our business,” Caperton said. “There’s really good high-end technology equipment that’s very competitive and very productive for us. And we will spend aggressively to buy that type of material.”

‘Faster gear’

Investments like these and the Fed’s easing of monetary policy will cushion a slowing job market, according to Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. The unemployment rate rose to 4.6% in November, the highest in more than four years, and economists predict it will average 4.5% this year.

“Labor demand should shift into a faster gear by mid-year as businesses increase investment in response to lower interest rates and tax incentives,” Bostjancic said.

Fed policymakers including Chair Jerome Powell have said inflation linked to higher tariffs will likely be a one-off and eventually fade. Still, the cost of living was a major issue in November’s off-year elections, where Trump’s Republicans suffered losses. Companies remain concerned about tariffs and are projecting price increases of more than 3% in 2026, according to one recent survey.

Jonathan Echeverry’s coffee business in Montclair, N.J., had to pay out an additional $150,000 in tariffs on beans, packaging, and other imports — just as his customers are becoming choosier in their spending.

“People are opting to buy beans to brew at home rather than to buy beverages,” said Echeverry, who co-owns Paper Plane Coffee Co. “I doubt this year will be better.”

Most forecasters anticipate a quieter year on the trade policy front compared with the chaos of 2025 — but there’s plenty of uncertainty still. The Supreme Court is expected to rule soon on the legitimacy of some of Trump’s import taxes. The president has floated the prospect of $2,000 tariff rebate checks, which would offer another boost to growth — and further pressure on the U.S. budget deficit.

AI spillovers

Another unknown is artificial intelligence. The rush to build and equip data centers helped lift business investment in 2025, and the AI-led equity boom amplified the purchasing power of wealthier Americans, but there’s also concern that the technology will replace human workers.

There’s a disconnect between multibillion-dollar announcements of new data centers and the amount of hiring they generate, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co.

“It’s not creating as many jobs as the big nominal numbers might imply and that’s in contrast to past capex booms,” he said. “Labor demand continues to look soft, and that leaves us worried about downside risks.”

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.