New Student Loan Limits And The End Of PLUS Loans
There are a myriad of changes to student loans that impact borrowers.
Student Loan Limits
The proposed legislation sets new
caps on federal student loan borrowing.
The annual limits would turn into an individual-specific calculation and vary by program: New Cost of Attendance Calculation minus any Pell Grant awarded to the student.
The maximum aggregate amount a student could borrow for an undergraduate degree would be $50,000, and that would also be the "parent loan matching limit", as described below.
The maximum limit a graduate student could borrow would be $150,000 - for a combined lifetime limit of $200,000, including both undergraduate and graduate debt.
Colleges would also gain new authority to impose their own lower loan limits for programs at their discretion, provided they apply the limits equally across all students in a program.
Eliminating PLUS Loans
The bill would end
Grad PLUS loans starting in the 2026-2027 school year. It would also end the Parent PLUS Loan program.
Parents would only be able to borrow an amount equal to the student's borrowing, also long as the combined annual amount is less than the cost of attendance.
Note: For borrowers already in school, there is a three academic year grace period before this change goes into effect, as long as you've already received one of these loans.
Eliminating Subsidized Loans
The proposal seeks to end
subsidized student loans for new borrowers after 2026.
Note: For borrowers already in school, there is a three academic year grace period before this change goes into effect, as long as you've already received one of these loans.
Cost Of Attendance Changes
Finally, the calculation for
cost of attendance is also set to change starting with the 2026-2027 school year, to a formula called the median cost of college of the program of study of the student. This number would be the median of the program across all colleges that offer the program.
Repayment Plan Changes
Another major shift would occur in repayment. For loans issued after July 1, 2026, borrowers would no longer be offered current
income-driven repayment options like IBR, ICR, or PAYE, Instead, they would primarily be steered into a standard repayment plan. Only limited repayment assistance would be available for those facing hardship.
For borrowers already in repayment before July 1, 2026, the existing income-driven options would generally remain in place.
Standard Repayment Plan
The new standard repayment plan would be a tiered repayment approach:
- Loans Under $25,000: 10 Years
- Loans $25,000 to $50,000: 15 Years
- Loans $50,000 to $100,000: 20 Years
- Loans Over $100,000: 25 Years
These plans pay off the full principal and interest over the time period based on the loan balance.
Income-Based Repayment Assistance Plan
This is a version of income-driven repayment that is designed to replace the existing plans. It's complex. There's no easy way to describe this other than to simply highlight what the law says:
Your monthly payment will be based on your
Adjusted Gross Income (AGI), with some calculations:
- AGI ≤ $10,000: $120
- $10,001–$20,000: 1% of AGI
- $20,001–$30,000: 2% of AGI
- $30,001–$40,000: 3% of AGI
- $40,001–$50,000: 4% of AGI
- $50,001–$60,000: 5% of AGI
- $60,001–$70,000: 6% of AGI
- $70,001–$80,000: 7% of AGI
- $80,001–$90,000: 8% of AGI
- $90,001–$100,000: 9% of AGI
- AGI > $100,000: 10% of AGI
Calculate the Monthly Base Payment:
- Divide the applicable base payment by 12 (to convert it to a monthly amount).
- Subtract $50 for each dependent child (a child under 17 living with you and supported mostly by you).
Apply Minimums and Limits:
- If the result is less than $10, your monthly payment is set to $10.
- If your total remaining loan balance(principal + interest) is less than the calculated payment, you just pay the remaining balance.
Examples:
AGI = $25,000, 2 dependent children:
- Base payment = 2% of $25,000 = $500
- Monthly = ($500 ÷ 12) - ($50 × 2) = $41.67 - $100 = -$58.33
- Since it’s below $10, the payment is $10.
AGI = $60,000, no dependent children:
- Base payment = 5% of $60,000 = $3,000
- Monthly = $3,000 ÷ 12 = $250
- Payment is $250 (since it’s above $10).
Loan Forgiveness
You keep making
monthly payments until one of these happens:
- Your loan balance (principal + interest) reaches $0 (you’ve paid it off), or
- You’ve made 360 qualifying monthly payments (that’s 30 years).
Payments are required every month unless you’re in an approved deferment or forbearance period.
After you’ve made
360 qualifying monthly payments (30 years), any remaining balance on your loans is
forgiven (canceled by the government), as long as:
- You participated in the Repayment Assistance Plan at some point.
- Your most recent payment before forgiveness was under this plan.
This plan (the Repayment Assistance Plan) is also eligible for
Public Service Loan Forgiveness.
Negative Amortization
There is no negative amortization. Negative amortization happens when your payment doesn’t cover the interest, and the unpaid interest gets added to your loan balance, making it grow. Here’s why that doesn’t happen:
- Interest Subsidy: If your monthly payment is less than the interest that accrues, the government waives the unpaid interest—it’s not added to your loan.
- Principal Reduction Help: If your payment reduces your principal by less than $50 (after covering interest and fees), the government adds an extra reduction to your principal, up to $50 or your payment amount (whichever is less).
Example:
You pay $40, but interest is $100:
- $40 goes to interest; the remaining $60 interest is waived (not added to your loan).
- No payment goes to principal, so the government reduces your principal by $40 (lesser of $50 or your $40 payment).
Result: Your loan balance shrinks by $40, even though your payment was less than the interest.
Since unpaid interest is forgiven monthly and your principal can still decrease, your loan balance never grows due to unpaid interest.
Related: Who's To Blame For The Student Loan Crisis
Eliminating Economic Hardship And Unemployment Deferments
Economic hardship and unemployment deferments would also be eliminated for new loans. Borrowers would instead have access to limited forbearance options capped at nine months within a 24-month period.
Interest subsidies during medical or dental residencies would be time-limited as well.
The goal is to get borrowers into the Repayment Assistance Plan and repaying their loans.
PSLF Changes
Future medical (and dental) residents would also lose
Public Service Loan Forgiveness (PSLF)eligibility unless they had borrowed prior to June 30, 2025. This is done by eliminating residency as a qualifying employment.
"The term ‘public service job’ does not include time served in a medical or dental internship or residency program (as such program is described in section 428(c)(3)(A)(i)(I)) by an individual who, as of June 30, 2025, has not borrowed a Federal Direct PLUS Loan or a Federal Direct Unsubsidized Stafford Loan for a program of study that awards a graduate credential upon completion of such program."
PSLF borrowers would now have to use the Repayment Assistance Plan.
Loan Rehabilitation
New changes will allow
loan rehabilitation to get borrowers out of default to happen twice, not once.
Pell Grants And Workforce Grants
The bill would change the way
Pell Grants are awarded by imposing a new limit based on the
Student Aid Index (SAI), not just income. A student would not be eligible for a Pell Grant if their SAI is over a certain threshold, even if their family income would otherwise qualify. The goal here is to prevent "
Pellionaires".
It would also create a "Workforce Pell Grant" for students enrolled in eligible short-term vocational programs. The Workforce Pell would offer funding for non-degree programs that meet specific federal criteria, expanding Pell access beyond traditional colleges.
The changes seek to target Pell aid more tightly at students with the greatest financial need, and to support workforce training programs aligned with growing labor market demands.
Providing Loan Servicers More Funds
Recognizing the administrative complexity of the changes, the bill would increase funding for
student loan servicing. Servicers would receive higher payments per borrower to help manage the transition to new loan rules and repayment options.
Note: Here's How Much Student Loan Servicers Make Currently
In addition, the bill would impose stricter limits on the Department of Education's authority to issue major regulatory changes affecting loan programs without explicit Congressional approval.
Final Thoughts
These changes to higher education can be considered massive. These changes impact both how families will pay for college, and how borrowers will get out of student loan debt.
It's important to note that these changes would
only apply to loans made after July 1, 2026. So existing borrowers would be grandfathered into their programs. Furthermore, the new RAP would be eligible for PSLF, which is good news for borrowers pursing public service jobs.
There are also some good aspects, like the expansion of "no negative amortization" and the new Workforce Grants.
However, the new RAP is complex. Very complex. I think borrowers are going to struggle to navigate this plan, and servicers are going to struggle to help borrowers with it. That could be detrimental.
It will be important to see what Congress does with these plans moving forward.
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