On July 4, 2025, the One Big Beautiful Bill Act (abbreviated OBBBA) was signed into law. This piece of legislation brings major changes across federal tax, spending, health, and social policy—and education is no exception. For students, families, and institutions, the new law reshapes how federal student aid works, how students will navigate taking out loans, and how parents can use education savings vehicles. The summary below outlines some of the most important notes to highlight, what to be on the lookout for in the near future, and what students, parents, and educators alike need to know.
529 Savings Plan Expanded Flexibility
- You can now utilize 529 plans for:
- Postsecondary credentialing and diploma programs, professional licensing/certification, skilled trade/vocational career training, and apprenticeships.
- Examples: welding, cosmetology, mechanic training, Commercial Driver’s License (CDL), Certified Public Accountant (CPA), Certified Financial Planner (CFP), bar exam.
- Programs must be state or federally recognized (use Workforce Innovation and Opportunity Act (WIOA) or Web Enabled Approval Management System (WEAMS) databases to confirm). Recognition can vary from state to state.
- Initial program costs plus all test prep, exam fees, books, equipment, continuing education requirements, etc.
- Curriculum materials, tutoring, online platforms, educational therapies, and test fees (e.g., SAT, ACT, AP).
- Dual-enrollment college tuition for high school students.
- Effective 2026, annual K-12 spending limit raised from $10,000 to $20,000.
- Postsecondary credentialing and diploma programs, professional licensing/certification, skilled trade/vocational career training, and apprenticeships.
Impact and What to Consider:
These provisions offer more flexibility to families, especially those seeking alternatives to a “traditional” 4-year degree. Families who may not have previously contributed to a 529 plan because of its limitations may now consider contributing to one.
Changes to Student Loans:
- Grad PLUS loans have been eliminated for new borrowers starting in the 2026–2027 academic year.
- Borrowing limits are now capped:
- Graduate students in non-professional programs can borrow up to $20,500 per year, with a lifetime cap of $100,000.
- Professional students (law, medical, etc.) can borrow up to $50,000 per year, with a $200,000 lifetime limit.
- Parent PLUS loans are now subject to annual ($20,000) and lifetime ($65,000 per child) borrowing limits.
- A universal borrowing limit of $257,500 applies across all federal education loans (excluding Parent PLUS).
Impact and What to Consider:
These changes may hit graduate students the hardest, especially those attending high-cost programs. Some students may have to end up relying on private loans or institutional aid to fill the gap. The reforms could reduce student debt but also restrict access to advanced education for those without financial support. If your student is currently in graduate school, consider strategically using the available loan options for the 2025-2026 school year before these changes are enacted.
Loan Repayment & Forgiveness Changes
- A new Repayment Assistance Plan (RAP) will replace most income-driven repayment options. Monthly payments will be based on AGI and number of dependents.
- Borrowers will have fewer repayment choices, with terms determined primarily by income and family size.
- Debt forgiveness after 2025 may be taxable, reversing previous IRS exceptions for forgiven federal student loans.
- Changes to borrower protection programs (like borrower defense and closed school discharge) are expected to make relief harder to obtain.
Impact and What to Consider:
While simplifying repayment may help reduce confusion, the elimination of flexible repayment options could hurt those with unique financial situations. Making forgiven debt taxable also introduces unexpected financial risks for borrowers.
Changes to Pell Grants & Workforce Training
- “Workforce Pell” Grants: Now available for short, job-focused, accredited programs (8–15 weeks) that lead to credentials in high-demand fields.
- Full Pell Grant funding restored to cover previous federal shortfalls.
- $7,395 is still the maximum, and a full-time student still means 24 credit hours.
- New limitations on Pell eligibility, particularly for students already receiving full-ride scholarships or attending low-performing programs. Can only pay direct college costs (room, board, tuition, and fees), so upperclassmen living off campus may need to make other arrangements.
- Foreign income is included in the income calculation when determining eligibility
Impact and What to Consider:
These updates aim to align education more closely with workforce needs and allow students more opportunities in fields they are interested in. However, some students could lose access to Pell funding with the new provisions, even though the maximum amount and full-time student definition have not changed.
Summary
The One Big Beautiful Bill Act is one of the most significant federal education reforms in recent legislation. While there might be some opportunities for current students to be “grandfathered” into previous rules and loan maximums, we will have to wait to see how the details shake out. If you or your student is thinking about college or is already enrolled, we encourage you to pay attention to the details that pertain to you and keep yourself updated as the 2026-2027 school year approaches. As always, our team stands ready to answer any questions you may have as you navigate this complex process.