College Planning Changes After The Big Beautiful Bill Act

While the headlines about the Big Beautiful Bill Act all highlight the tax changes, one area that hasn’t gotten as much attention as the numerous changes within the education, college funding, and student loan space.  For many families, the Big Beautiful Bill college planning changes will be even more significant than the tax changes. There are upcoming changes to:

• The FAFSA
• Funding College
  • Pell grants
  • Student loan borrowing
• Student loan repayment
  • Repayment Plan Changes
  • Forbearance & Deferment Changes
  • Tax-free Discharge in the Event of the Borrower’s Death
  • Employer payment of student loans
• 529s
  • Use for elementary and secondary education
  • Use for credentialing
• University Endowments

There are also things that were proposed, that didn’t make the final bill.  Most of these changes would have hurt families so the fact that they didn’t pass is a good thing.

College Planning and the FAFSA

Starting in 2026, family farms (family must live there), small businesses with less than 100 employees, and commercial fishing businesses will no longer be counted as an asset for determining your Student Aid Index on the Free Application for Federal Student Aid.

Funding College

The Big Beautiful Bill college planning sections make some significant changes to college funding and the availability of Federal student loans.  The new legislation expands Pell Grant availability for some short-term programs and caps student loan borrowing.  Let’s look at the specifics and how it might impact you.

Pell Grants

The bill will allow students attending short-term training programs to qualify for Pell Grants.  This is provision was largely supported by both parties and could help lower-income, non-traditional students who need additional training more easily pay for these programs.  This will also help local community colleges that typically offer this type of training. For traditional college students, the Pell Grant can only be used for direct expenses paid to colleges.  This could affect students who don’t live on campus if they have a full-tuition scholarship.

Student Loan Borrowing

This bill will meaningfully alter the future Federal Student Loan borrowing.  While the Stafford loans for undergraduate students are largely unchanged, graduate and parent borrowing will now be capped.  This alters the previous unlimited lending through the Federal Government that made school accessible to more students but has led to the ballooning college debt that many people have taken on. Graduate Plus loans will be eliminated in 2026.  Graduate students will still be able to borrow, but the annual maximum is $20,500 and the total amount of borrowing is $100,000.   Professional students (lawyers, doctors, etc.) can borrow up to $50,000 annually and are capped at $200,000 in total borrowing.  There is a provision for students in a current program to continue to borrow to complete their program. Additionally, there is a maximum lifetime borrowing limit of $257,000 per student. Repayment, forgiveness, or discharge do not impact this limit.  This limit does not impact Parent Plus borrowing in the future for your children.  Again, there is a provision that will allow current students to continue under current limits until they’ve completed their program of study. Parent Plus loans will be limited to $20,000 annually and total cap of $65,000 per student.  This is the combined maximum for both student’s parents. Mike’s Take:  I’m a little bit torn on this.  The current situation that allows unlimited Parent Plus and Grad Plus needs to be reined in.  I’ve worked with numerous families with over $250,000 in Parent Plus loans.  The new numbers are very low and aren’t indexed to inflation so it could make college more out of reach for many.  But, if this causes more families to truly understand what college will cost and how they might have to expand their search to schools they can afford, that’s great.  I’m just afraid this will simply push more borrowers to the private student loan market with fewer protections. Less Than Full-Time Enrollment – Will limit borrowing for students who are enrolled less than full-time.  The Secretary of Education will release the amounts annually. Bottom line:  It will be now more critical than ever that students and families have a solid plan to pay for all years of college.  The worst-case scenario will be students who use all their available assets and or borrow to finance the first few years of college and then find out they can’t get more Federal loans and because of the previous borrowing don’t qualify for additional private loans.

Student Loan Repayment

The Big Beautiful Bill student loan changes fundamentally alters student loan repayment options starting in July 2026.  At that point, current borrowers will no longer be able to enroll in 3 of the current Income Driven Repayment (IDR) plans.

• Saving on A Valuable Education (SAVE)
• Pay As You Earn (PAYE)
• Income-Contingent Repayment (ICR)

It also introduces a new plan called the Repayment Assistance Plan (RAP), discussed below. Existing Student Borrowers – who won’t take out additional loans after June 2026 Borrowers enrolled in these plans have until 2028 to move to another repayment plan.  Those options will be:

• Income-Based Repayment (IBR): For those who started borrowing on or after July 1, 2014 they will pay 10% of discretionary income and receive forgiveness at 20 years.  Those who started borrowing before July 1, 2014 they will pay 15% of discretionary income and receive forgiveness at 25 years.
  • Discretionary income is Adjusted Gross Income (AGI) minus 150% of the Federal Poverty guideline for your family size and state of residence.
• Repayment Assistance Plan (RAP): New plan codified in this bill.  May offer lower monthly payments but extends repayments to 30 years before forgiveness.

Borrowers who do not make a choice will default to RAP.  This may or may not result in an increase in monthly payments. Borrowers in SAVE Plan – SAVE is still being litigated in court.  It’s doubtful that it will last until 2028.  But, if it does borrowers will default to RAP.  If a borrower has ineligible loans (Parent Plus loans), they will be defaulted to IBR. Married Borrowers – Married couples who file taxes separately will be able to exclude their spouse’s income from the payment calculations.  In some of the previous (pre-signature) versions, couples would have had to include their spouse’s income even if the spouse had no student loans.

Parent Plus Loans

Borrowers with Parent Plus loans have some specific actions they should consider based on the final language in the Big Beautiful Bill student loan sections.  Many of the upon-bill-signature Parent Plus loan deadlines were dropped in the final Bill giving parents a small window to act. Borrowers who consolidated their Parent Plus loans and are in the ICR repayment plan will automatically transition to IBR in July 2026.  Borrowers in this situation do not need to take any action. Parent Plus loan borrowers who have NOT consolidated have 1 year from the bill’s enactment to consolidate their loans.  There are 2 options:

• Single Consolidation: Will allow borrowers to access the ICR repayment plan between the time of consolidation and July 2026 when you will be automatically transferred to IBR
• Double Consolidation: If borrowers complete a double consolidation taking advantage of the double consolidation loophole, they will be able to enroll in SAVE or PAYE until July 2026 when they will be transitioned to IBR.

Any Parent Plus borrowers who are in an Income Driven Repayment (IDR) plan in July 2026 will automatically be transferred to IBR. VERY IMPORTANT:  Those borrowers who haven’t consolidated their Parent Plus loans during this 1-year period will lose all access to IDR plans.  The borrowers will be defaulted to the standard repayment plan.  This will most likely result in higher payments for borrowers.

Effects on Future Borrowers

Borrowers who take loans after July 1, 2026 will only have 2 options for repayment.  They are the new RAP or the new standard repayment plan with repayment window of 10-25 years depending on amount borrowed. RAP will base repayment on Adjusted Gross Income with no offset for the poverty level.  The minimum payment will be $10 per month.

Effect on Future Parent Borrowers (after July 1, 2026)

Parent Borrowers who take loans after July 1, 2026 will only have access to the standard repayment plan.    This includes those borrowers who consolidated loans and are in a Income-Driven Repayment Plan like IBR.  Taking a new loan will render all loans ineligible for Income-Driven Repayment and move them to the Standard Plan. Mike’s Take:  This is a big deal if you have a large amount of Parent Plus loans that you’ve consolidated and possibly gotten into the PSLF or even an Income-Driven Repayment Plan.  Loss of this access could drive your payments much higher and you will not be eligible for forgiveness.

Other Repayment Provisions

Forbearance and Deferment of Loans – Loans issued after July 1, 2026 will be ineligible for Unemployment and Economic Hardship Deferment.  Additionally, these loans will only be eligible for up to 9 months of forbearance in any 2 year period. Tax-free forgiveness in Event of Borrower’s Death – Loans discharged because of the borrower’s death will continue to be tax-free.  This provision was scheduled to sunset, but has been made permanent. Employer-Payment of Employees Student Loans – Employers can exclude up to $5,250 in student loan payments from the employee’s taxable income starting in 2026.  This extends and makes permanent the provision that was scheduled to expire in 2025.  The exclusion amount will also be indexed to inflation in subsequent years.

529s

There are 2 notable changes in the 529 space.  The changes expand 529 use for:

• Elementary and secondary school expenses
• Postsecondary credentialing expenses

Elementary and secondary school expenses

The qualified expenses for elementary and secondary public, private, and religious schools now includes:

• Tuition
• Curriculum and curricular materials
• Books and other instructional materials
• Online educational materials
• Tuition for tutoring or educational classes outside the home. Tutor cannot be related to the student

The expanded qualified expenses are in effect with the passage of the bill. Note:  While the usage expands, homeschool isn’t specified.  The specific language in Section 70413 (a) (1) (7) “reference to the following expenses in connection with enrollment or attendance at, or for students enrolled at or attending, an elementary or secondary public, private, or religious school.”   The language specifically says enrollment at a school.  Consult the 529 requirements for your state or a tax professional if you’ve got homeschool expenses. Additionally, the annual usage limit is raised to $20,000 from $10,000.  This will begin for the 2026 tax year.

Postsecondary Credentialing

529s can now be used for recognized postsecondary credentialing programs.  Qualified expenses include:

• Tuition
• Fees
• Books
• Supplies
• Required equipment
• Fees for testing required to obtain or maintain a recognized postsecondary credential
• Fees for continuing education required to maintain a recognized postsecondary credential

These changes are effective with the passage of the bill. Workforce Pell Grants – Expands Pell Grants to allow for short-term (8-15 week) job training programs at accredited institutions.  This would count towards the lifetime Pell Grant limit of 12 semesters.

University Endowments

Colleges and Universities with large endowments will see an increase in taxes on those funds.  Previously schools with endowments worth more than $500,000 paid a 1.4% tax on those funds.  The bill introduces a 4-tier tax for schools with over 3,000 students.  The top rate will now be 8% for endowments with more than $2,000,000 per student.

What Didn’t Change (But Was In Either The House Or Senate Draft Bills)

Termination of Subsidized Federal Direct Loans – The original House version of the bill directed the termination of the subsidized portion of Federal Direct Loans.  This was dropped in the Senate version. Mike’s Take:  This is great news for families who qualify for need-based aid. Changes To Annual Amount of Undergraduate Unsubsidized Stafford Direct Loans  – The House bill introduced a complex formula that would have made the amount of loans tied to the median cost of the undergraduate program of study.  This did not make the final version. Exclusion of Medical and Dental Residency from Public Service Loan Forgiveness – This would have excluded borrowers time in a medical or dental residency program from counting toward PSLF.  This did not make the final version. Full-Time Enrollment for Pell Grant Eligibility – Provision would have required students be full time to receive a Pell Grant. Mike’s Take:  This is great news for low-income, non-traditional students pursuing their education.

Wrap Up

The college planning sections in the Big Beautiful Bill make impactful changes to the education space.  I think it will be years until we figure out the full extent.  The critical piece is to have a plan.  The most expensive schools cost over $100,000 per year and even most state schools are $25,000 or more.  The decision on the right college and how to pay for it can be incredibly complex.  You need to have a plan for all 4 years. And while it used to be that the Federal government would lend you an unlimited amount of money, that’s no longer the case. Additionally, if you have multiple children, you need a plan that covers all of them.  I can envision a scenario where excessive borrowing for your older children could impact your ability to get loans for younger ones. If you’d like to figure out if your college funding plan is on track or things you can do to find schools that won’t break the bank, set up a call with Mike or one of the other MQFPs.  We can help families navigate college planning and funding and find schools that won’t prevent you from being able to retire. If you liked this article check out this article about the tax changes in the Big Beautiful Bill Act.