Signed into law on July 4, 2025, the “One Big Beautiful Bill Act” (”BBB”) is a comprehensive budget reconciliation bill that has a significant impact on higher education. The legislation restructures federal student loans, redefines institutional accountability, alters Pell Grant eligibility, introduces new endowment taxes, and more.
Notably, the legislation imposes borrowing limits on federal student loans starting in the 2026-2027 academic year. Specifically:
- Graduate students will be limited to borrowing $20,500 per year in federal student loans and a $100,000 lifetime maximum borrowing limit.
- Professional students, such as those in law school or medical school, will be limited to borrowing $50,000 per year in federal student loans and $200,000 lifetime maximum borrowing limit.
- Part-time students will also be limited in the amounts they can borrow in direct proportion to their part-time degree program.
- In total, a universal federal student loan borrowing cap of $257,500 now applies to all students for federal student loans across undergrad, graduate, and professional education.
These borrowing limits will impact students in high-cost graduate and professional programs, as well as undergraduate and part-time students who depend on federal student loans to finance their higher education. In addition, the Grad PLUS loan program—a major funding stream for graduate students—will end on July 1, 2026. Parent PLUS loans have also been restricted to a $20,000 annual and $65,000 lifetime maximum borrowing limit per student, reducing borrowing ability for families.
Federal student loan repayment options will also be redesigned. Starting July 1, 2026, previous income-driven repayment plans will be consolidated into two options: a new Repayment Assistance Plan (RAP) or the existing Income-Based Repayment Plan (IBR). RAP bases monthly payments on a borrower’s adjusted gross income, payments continue until the loan balance is $0 or the borrower makes 360 qualifying monthly payments (the equivalent of 30 years of payments). Additionally, federal student loan forgiveness will be taxable for any debt forgiven after December 31, 2025. These changes signal a shift toward a less borrower-friendly federal student loan system.
While the legislation imposes federal student loan borrowing limits, the bill does expand Pell Grant access in strategic ways. Most notably, it introduces “Workforce Pell” grants, starting July 1, 2026, which allow Pell Grant funding to be awarded to students in short-term workforce certificate or training programs lasting between 8 and 15 weeks. This is intended to align federal student aid more closely with workforce needs and non-traditional education paths. However, Pell eligibility rules have become stricter in other areas. Students who receive other full-ride scholarships from colleges or whose Student Aid Index (SAI) exceeds a certain threshold may no longer qualify for Pell Grants. Despite these limitations, the bill guarantees full funding for the Pell program, ensuring its continued existence and expansion to alternative learning pathways.
In terms of institutional accountability, the bill introduces new earnings-based metrics. Colleges and universities can no longer award federal student aid for academic programs with “low-earning outcomes.” “Low-earning outcomes” means that the median earnings of graduates from the program are less than the median earnings of a working adult with a lesser or no credential.
The bill also revises the excise tax imposed on certain private college and university endowments. Specifically, the bill raises the endowment tax from a flat 1.4% to as high as 8%, depending on the size of the endowment compared to the size of the student body, as shown in the table below:
| Endowment Per Student | Excise Tax Rate |
| Less than $500,000 | 0% |
| $500,000 – $750,000 | 1.4% |
| $750,000 – $2,000,000 | 4% |
| Above $2,000,000 | 8% |
Private colleges and universities with fewer than 3,000 students are exempt, but the measure signals a broader federal interest in taxing private institutions of higher education with large endowments.
Even non-higher education specific changes in the bill will impact students and institutions of higher education. With nearly $1 trillion in cuts to safety-net programs like Medicaid and SNAP, students who rely on these services may face hardships.
These changes from the One Big Beautiful Bill Act will be felt widely across the higher education landscape. Graduate students may find it more difficult to fund their education with federal student loans and instead turn to private lenders. Community colleges may benefit from the expansion of Workforce Pell but face pressure under new earnings metrics and limits on federal student loans for part-time students. Private colleges and universities with large endowments will be taxed more while also needing to demonstrate the efficacy of their programs under the new earnings metrics. For families, limits on federal student loan borrowing may limit options.
Ultimately, the One Big Beautiful Bill Act redefines the federal government’s role in higher education and as a policy statement prioritizes workforce readiness and financial accountability over broad access and affordability.