Many federal employees have children who will be attending colleges and universities in the fall. The options for paying for college recently changed in a major way as new student loan rules took effect July 1, 2026. The overhaul of federal student loan program made under the One Big Beautiful Bill Act (OBBBA) tax law of 2025 will affect millions of individuals who take out loans to finance their college education.
The Trump administration’s overhaul of the federal student loan program limits how much individuals can borrow to finance the cost of higher education. The overhaul also limits the ways a student loan borrowers can repay their loans. These two changes are intended to control the skyrocketing cost of college with student loan debt, which currently is at around $1.9 trillion.
The following is what parents and their children need to know about the new student loan rules.
Limits on Student Borrowing
New rules impose stricter limits on how much students can borrow to finance their college education:
‧ Parent PLUS loans. The Parent PLUS loan program allows parents to take out a federal loan for their child’s undergraduate education. In the past, parents could borrow via a Parent PLUS loan up to the full cost of attending a college or university. Starting July 1, 2026, the amount that parents can borrow will be capped at $20,000 a year and $65,000 total for the full undergraduate education per student.
‧ Graduate School and Professional Education. New borrowing limits will affect graduate students and those pursuing professional degrees. Graduate students will still be able to borrow up to $20,500 per year. However, starting July 1, a new limit will prevent graduate students from borrowing more than $100,000 over the course of their degree. This is a decrease from the previous $138,500 limit. For those individuals pursuing professional degrees (such as law school and medical school degrees), the borrowing limit is $50,000 per year with a maximum total of $200,000 over the course of their degree. At the same time, The Education Department wants to change what counts as a professional degree and remove the designation for nursing, accounting, and other degrees. A federal court temporarily blocked the move. However, the federal government has said it plans to defend its changes.
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‧No new Graduate PLUS loans. As of July 1, 2026, new student loan borrowers are blocked from Graduate PLUS loans, which allowed individuals to borrow as much as they needed to fund their degree. Current Graduate PLUS borrowers will be grandfathered and will still be able to access their loans.
‧New lifetime borrowing limit for graduate students. Effective July 1, 2026, all graduate students face a lifetime borrowing limit of $257,500 regardless of the type of graduate degree they are pursuing.
The amount that undergraduates can borrow remains unchanged during 2026; that is, those undergraduates who are still dependent on their parents can borrow $5,500 for their first year and a little more in subsequent years for a total of $31,000 loans over the course of their undergraduate degree.
Those undergraduates who support themselves (not tax dependents of their parents) can borrow $9,500 in the first year and $57,500 total over the course of their undergraduate degree.
Repayment Options are Decreasing
Current student borrowers who do not take out new student loans after July 1, 2026, can continue to access the existing repayment options, which include the:
(1) Standard Repayment Plan;
(2) Extended Repayment Plan;
(3) Graduated Repayment Plan;
(4) Income-Based Repayment (IBR);
(5) Pay As You Earn (PAYE); and
(6) Income-Contingent Repayment (ICR).
Student loan borrowers may also opt into the new Repayment Assistance Plan (RAP). But the OBBBA phases out the PAYE plan and the ICR plan. Student loan borrowers must move to another repayment plan by July 1, 2028. However, student loan borrowers enrolled in the Saving on a Valuable Education (SAVE, a Biden-era plan that had especially forgiving terms; the plan was struck down by a federal court) have 90 days after July 1,2026 to access of the two new federal student loan repayment plans (see next paragraph).
Beginning July 1, 2026, student loan borrowers who take out a new federal student loan will have only two repayment options, namely: (1) The Tiered Standard Plan; or (2) The Repayment Assistance Plan or RAP. Borrowers with existing student loans who take out a new student loan after July 1,2026 will also be subject to the new repayment rules. Once an individual’s new loan enters repayment status, all of the student’s federal loans must be repaid under one of the two new repayment plans (the Tiered Standard Plan or the Repayment Assistance Plan).
Pell Grant Rule Changes
The OBBBA tax law also tightens eligibility requirements for the Pell Grant program, the largest federal aid program for low-income students. In short, those students who receive non-federal grants or scholarships up to or exceeding the cost of their attendance, will no longer be eligible for additional funding through the Pell Grant program.
The OBBBA also expands Pell Grant eligibility to students enrolled in shorter-term workforce training programs. Programs in fields such as nursing assistance, early childhood education and automotive mechanics could qualify under the new Pell Grant rules. In the past, workforce training programs generally had to last at least 15 weeks and include 600 clock hours of instruction to be eligible for Pell Grant funding.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019
