Higher education funding is about to undergo a major overhaul. The One Big Beautiful Bill Act (OBBBA), passed in July 2025, brings sweeping changes to student loans, repayment plans, 529 plans, and even employer-provided repayment assistance. Whether you’re a student, a parent, or a grandparent, these updates could have a significant impact on how you borrow, save, and pay for education in the years ahead. At Stone Oak Wealth, we’re breaking down what’s changing—and what you need to know to stay ahead.
New borrowing limits and payment pause rules
Parent PLUS Loans. Starting July 1, 2026, Parent PLUS Loans will have a $20,000 annual limit and a $65,000 total limit per dependent student. (Currently, parents can borrow up to the full out-of-pocket cost of their child’s undergraduate education.) There is a grace period for parents of undergraduate students who are currently borrowing under this program.
Grad PLUS Loans. Starting July 1, 2026, the Grad PLUS Program will be eliminated. It will be replaced by new graduate loans under the existing Direct Loan Program, with new loan limits: $20,500 per year and $100,000 total for graduate students and $50,000 per year and $200,000 total for professional students (these limits do not include undergraduate loans). There is a grace period for students who are currently borrowing under this program.
Direct Loans. Starting July 1, 2026, there will be a new lifetime student loan borrowing cap of $257,500. This limit applies to undergraduate and graduate loans, not Parent PLUS Loans. Also, starting July 1, 2027, the economic hardship and unemployment deferments will be eliminated, and a forbearance (a payment pause due to short-term financial difficulty) will be limited to a single nine-month pause every 24 months.
New student loan repayment plans
OBBBA significantly alters the landscape of federal student loan repayment programs. The Saving on a Valuable Education (SAVE) Plan, the Pay As You Earn (PAYE) Plan, and the Income-Contingent Repayment (ICR) Plan will be phased out and eliminated by July 1, 2028. Borrowers currently enrolled in one of these repayment plans must transition to a new plan by July 1, 2028.
In addition, the legislation creates two new repayment plans as of July 1, 2026: the Standard Repayment Plan and the Repayment Assistance Plan.
Standard Repayment Plan.
In the past, fixed monthly payments were spread over 10 years. Under the new Standard Repayment Plan, the amount of time a borrower has to repay a student loan depends on the loan balance:
- Less than $25,000 — 10 years
- $25,000 to less than $50,000 — 15 years
- $50,000 to less than $100,000 — 20 years
- $100,000 and over — 25 years
Repayment Assistance Plan. The Repayment Assistance Plan (RAP) is a new income-based repayment (IBR) plan that sets monthly loan payments as a percentage of a borrower’s adjusted gross income (AGI). This plan is only available to undergraduate and graduate students, not parents. After 30 years of on-time payments, all remaining debt is forgiven. (Current federal IBR plans forgive remaining debt after 20 or 25 years.) A bright spot: payments are applied first to interest, then to fees, then to principal, and if the required payment is less than any new interest that accrues, the extra interest is waived.
For married borrowers who file a joint federal income tax return, their joint AGI is used. And the monthly payment will be reduced by $50 for each dependent listed on a borrower’s federal income tax return.
Repayment Assistance Plan
Monthly Payments Based on AGI
Source: Department of Education, 2025
Miscellaneous provisions
New Workforce Pell Grant. Starting with the 2026–2027 school year, a new Workforce Pell Grant will be available to students who are enrolled in accredited, short-term (8–15 weeks in duration) job-focused programs, such as certificate programs at community colleges. Funding amounts will be prorated based on the program’s length.
New qualified expenses for 529 plans. Starting in 2026, qualified 529 plan expenses will expand to include tuition, fees, books, and expenses for workforce credentialing programs. In addition, the limit on K-12 qualified expenses will increase from $10,000 to $20,000 per year and will cover instructional materials, tutoring classes, dual enrollment fees, standardized test fees, and educational therapies for students with disabilities.
Employer student loan repayment assistance made permanent. Starting in 2026, the $5,250 of tax-free employer-provided student loan repayment assistance will be permanently extended. This amount will be indexed for inflation starting in 2027.
We recommend you taking a quick watch of Donnie’s perspective on this familial topic on grandparents lending a helping hand with college expenses,
The bottom line is this: with new loan caps, restructured repayment options, and expanded 529 plan uses, the OBBBA represents the biggest shift in federal education policy in years. These changes could influence your savings strategy, borrowing plans, and tax outlook. At Stone Oak Wealth, we help families make sense of policy changes so they can plan smarter, save efficiently, and support the next generation with confidence.
- The One Big Beautiful Bill Act (OBBBA), passed in July 2025, makes sweeping changes to student loans, repayment plans, 529 plans, and employer-provided education assistance.
- Starting July 1, 2026, Parent PLUS Loans will be capped at $20,000 per year and $65,000 total per dependent student. Grad PLUS Loans will be eliminated entirely.
- A new lifetime borrowing cap of $257,500 will apply to undergraduate and graduate Direct Loans starting July 1, 2026. Economic hardship and unemployment deferments will be eliminated in 2027.
- The SAVE, PAYE, and ICR repayment plans will be phased out by July 1, 2028. Borrowers must transition to new plans before that deadline.
- Two new repayment plans launch July 1, 2026: the Standard Repayment Plan (with terms tied to loan balance) and the Repayment Assistance Plan (income-based, with forgiveness after 30 years).
- Starting in 2026, 529 plan qualified expenses expand to include workforce credentialing programs, and the K-12 expense limit doubles from $10,000 to $20,000 per year.
- The $5,250 tax-free employer student loan repayment benefit is made permanent starting in 2026, and will be indexed for inflation beginning in 2027.
Frequently Asked Questions
What is the One Big Beautiful Bill Act and how does it affect college funding?
The One Big Beautiful Bill Act (OBBBA) was passed in July 2025 and represents the most significant overhaul of federal education funding policy in years. It changes borrowing limits on Parent PLUS and Grad PLUS loans, introduces new repayment plans, phases out existing income-driven plans, expands 529 plan qualified expenses, and makes employer student loan assistance permanent. The changes take effect primarily in 2026 and 2027.
What are the new limits on Parent PLUS and Grad PLUS loans?
Starting July 1, 2026, Parent PLUS Loans will be capped at $20,000 per year and $65,000 total per dependent student… a significant reduction from the current unlimited borrowing up to the full cost of attendance. Grad PLUS Loans will be eliminated entirely and replaced by new graduate Direct Loans with limits of $20,500 per year and $100,000 total for graduate students, and $50,000 per year and $200,000 total for professional students. Borrowers currently in these programs have a grace period.
What happens to the SAVE, PAYE, and ICR repayment plans?
All three plans… SAVE, PAYE, and Income-Contingent Repayment (ICR)… will be phased out and eliminated by July 1, 2028. If you are currently enrolled in one of these plans, you will need to transition to one of the two new repayment plans before that deadline. Waiting until the last minute could limit your options, so it is worth reviewing your situation sooner rather than later.
What is the new Repayment Assistance Plan?
The Repayment Assistance Plan (RAP) is a new income-based repayment option launching July 1, 2026. Monthly payments are calculated as a percentage of your adjusted gross income (AGI), with a $50 reduction per dependent listed on your tax return. Any interest that exceeds your required payment is waived rather than capitalized. After 30 years of on-time payments, remaining debt is forgiven. Note that this plan is available to undergraduate and graduate borrowers… not parents.
How do the 529 plan changes affect families?
Starting in 2026, 529 plans can be used for a broader set of expenses. Qualified uses will expand to include tuition, fees, books, and costs for workforce credentialing programs… not just traditional degree programs. For K-12 students, the annual qualified expense limit doubles from $10,000 to $20,000 and will cover instructional materials, tutoring, dual enrollment fees, standardized test prep, and educational therapies for students with disabilities.
Sources: Broadridge Investment Management Solutions
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