This July, Federal student financial aid programs will be transformed. Substantive changes are slated to take effect as a result of the One Big Beautiful Bill Law (OBBBL) that was enacted by Congress last summer. This post reviews the pending changes in three important areas; Loan Limits, Repayment Plans, and Pell Grants.
As expected, there is a range of opinions about the reforms. According to Danielle Douglas-Gabriel of the Washington Post, “Some higher-education experts say the changes will deliver commonsense reforms, others worry they could discourage college enrollment. Either way, future college students will encounter a very different Federal financial aid system.”
Loan Limits
In a sweeping revision to its loan policies, the U.S. Education Department (ED) will impose revised caps on the amount that graduate students and parents can borrow from the government. In all, students will face a lifetime limit of $257,500 for combined graduate and undergraduate loans. If loans and other student aid don’t cover all college costs, students will need to pay the rest themselves or use private lenders.
The Grad Plus program, which lets students borrow the cost of attendance for grad school, will end on July 1 for new borrowers. After that date, students pursuing a master’s or doctoral degree will have their borrowing capped at $20,500 per year and $100,000 per lifetime. Those seeking professional degrees will be capped at $50,000 per year and $200,000 per lifetime.
The different treatment of Standard Graduate Studies and Professional Studies has drawn controversy. Prospective health care and other professionals have inveighed against ED’s exclusion of their fields from the higher loan limits. They assert that limiting professional fields to only ten will discourage students from enrolling in advanced degree programs in other vital professional fields.
The professional fields that qualify for the higher Federal loan caps are listed below:
- Medicine (M.D., D.O.)
- Law (J.D., L.L.B.)
- Dentistry (D.D.S., D.M.D.)
- Pharmacy (Pharm.D.)
- Veterinary Medicine (D.V.M.)
- Optometry (O.D.)
- Podiatry (D.P.M.)
- Chiropractic (D.C.)
- Theology (M.Div., M.H.L.)
- Clinical Psychology (Psy.D. or certain Ph.D. programs)
The fields below will be considered Standard Graduate Studies for student loan purposes and will not benefit from the higher borrowing caps for Professional Studies.
Healthcare & Allied Health
- Nursing (e.g., MSN, DNP, Nurse Practitioner)
- Physician Assistant programs (PA)
- Physical Therapy (PT)
- Occupational Therapy (OT)
- Audiology & Speech-Language Pathology
- Counseling / Clinical Mental Health Counseling
- Social Work (e.g., MSW, DSW)
- Public Health degrees (e.g., MPH, DrPH)
Education & Related Fields
- All Educator preparation and teaching degrees (e.g., MEd, MAT)
- Educational Leadership and School Counseling programs
Other Fields
- Architecture and Design graduate programs
- Accounting/Business-related master’s degrees (e.g., MBA, MAcc)
- Engineering master’s programs
- Additional human services fields not on the ED’s approved list
Limits on Parents
While the OBBBL leaves undergraduate student loan limits unchanged, it does change how much money parents can borrow to support an undergraduate. Parents could previously take out as much as their child needed to attend college through the Parent Plus program, which was originally intended as a supplement when other types of student aid were exhausted. Starting July 1, the program will set new limits of $20,000 per year, or a total of $65,000 per lifetime.
Because few families use Parent Plus loans, it is projected that the new limits will affect only 2% of students. However, over 30% of the families that rely on these loans will be affected by the annual cap and 17% will run up against the $65,000-per-child total cap.
Repayment Plans
The multiplicity of Federal loan repayment plans has caused confusion for many years. Every administration has added a favorite new plan to the mix. Instead of having the seven current repayment plans, the OBBBL reduces the choice to just two: the Standard Plan (SP) and an Income-Driven Repayment (IDR) plan called the Repayment Assistance Plan (RAP).
The SP will stretch monthly payments out from 10 to 25 years. The larger the debt, the longer the repayment period. A former student with an outstanding principal of less than $25,000 will repay the debt in 10 years, while a borrower with more than $100,000 in debt will be in repayment for up to 25 years.
Payments on the RAP plan will range from 1% to 10% of the borrower’s total adjusted gross income. The plan cancels the remaining balance after 30 years of payments instead of the current 20 or 25 years. Borrowers must make minimum monthly payments of $10. If monthly payments are not enough to cover the loan’s principal and interest, repayments will forgive unpaid interest to prevent negative amortization.
The RAP provides a monthly subsidy of up to $50 to ensure that borrowers pay down their principal balance by at least that amount. The principal subsidy could result in faster loan forgiveness for low-income, low-balance borrowers. However, the RAP’s higher payments and longer time before forgiveness are likely to increase loan defaults.
Students may encounter problems in transitioning to new repayment plans. Congress gave borrowers enrolled in the Saving on a Valuable Education (SAVE) plan three years to exit. The ED struck a deal in December with seven states to resolve a lawsuit challenging the legality of the SAVE repayment plan. Enrollees would have a limited time to find another means of repaying their debt, but the ED has not yet provided an explicit deadline.
Pell Grants
There are 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 to include students enrolling in career training programs from 8 to 15 weeks in duration. Such programs, which are mainly offered at community, technical, and vocational colleges, must provide at least 600 hours of instruction.
In December, the ED reached a consensus with student-advocate negotiators on the framework of this policy, called Workforce Pell Grants. The proposal must still be published and finalized, but higher-education experts expect no changes. It calls for state governors to work with state advisory boards to determine which schools and programs are eligible, focusing on instruction in high-demand fields like nurse’s aides and EMT’s.
The OBBBL reinstated asset exemptions for family farms and small businesses in the financial aid calculation, which may help some students qualify for higher aid amounts. However, foreign income must now be included in the calculation of a student’s eligibility.
The OBBBL put a cap on the Student Aid Index (SAI) as it applies to Pell Grants. Students with an SAI equal to or greater than twice the maximum Pell Grant amount (currently $14,790) will be ineligible for a Pell Grant.
Other students may no longer be eligible. The ED will begin including foreign income in its calculations, which may reduce a student’s Pell eligibility. Anyone who receives enough scholarship money to cover their full cost of attendance will no longer be eligible to receive a Pell as a means to cover.
Starting July 1, students are ineligible for a Pell Grant if their total aid from non-Federal sources (such as state, institutional, or private scholarships) already meets or exceeds their Cost of Attendance (COA). Students will also be ineligible if their families have abundant assets but little income based on the SAI calculation. Starting July 1, an SAI that is equal to or exceeds the amount of the maximum Pell award will be disqualifying.
Summary
The OBBBA is widely expected to have a net negative effect on students who rely on Federal financial assistance for college. While the act introduces positives in the Workforce Pell Grants for short-term training and expands 529 plan benefits, its restrictive borrowing caps and costlier repayment terms significantly increase the financial burden on students.
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