On April 28, the House Education and Workforce Committee released its initial budget proposal and changes, called the Student Success and Taxpayers Saving Plan.  These education program changes are related to the current budget reconciliation bill.  They are significant, but they are only the initial proposal that will need to be blended with the Senate bill if approved.  The final law will be phased in over the next three years.

Students and parents should be aware of these proposed changes, as the federal government is attempting to reduce its financial exposure to student debt. As college and graduate school costs continue to rise, these changes will need to be taken into consideration in your decision today. The college financial decision is one of the most significant financial decisions people make without an independent third-party review

Here is a list of bullet points that summarize the initial proposal.  You need to be aware of these as you navigate college funding, student loan repayment, and forgiveness decisions.

Education Proposal Implementation Timing

• Most of the changes will begin in the school year 2026-27.
• Current enrolled college students and their parents will have a 3-year extension on specific loan limit rules.
• Incoming first-year students will have the newly imposed limits effective in their senior year.
• New repayment rules will begin with loans dated after 7/1/2026
• Loans dated prior to 7/1/2026 will have access to current repayment rules, including the various fixed methods, IBR, PAYE, and ICR. May have limits to changing methods after 7/1/2026

Financial Aid Process Changes

• Student Aid Index (SAI) will not include the asset value of a small family business or farm
• Federal funding, Cost of Attendance, which is the basis for need-based financial, will be based on a median cost of attendance by program and not by school
• Modification to the Pell Grant program calculation to include assets as part of the SAI and not just income
• Pell Grant receipts must be full-time students
• Improve project funding shortfall for the Pell Grant program
• Create a new Workforce Pell Grant program for non-traditional college programs

Modifications to Student Loan Limits and Programs

• Subsidized loans will be eliminated starting 7/1/2026 but available to prior enrolled students
• Elimination of Parent PLUS and Grade PLUS loans starting 7/1/2026
• Undergraduate students will have a lifetime federal loan limit of $50K.
  • The new Median Program Cost will determine annual loan limits
• Graduate students will have a lifetime federal loan limit of $100K, and Professional degrees will have a federal limit of $150K
• Parents will have a lifetime federal loan limit of $50K per child
  • The annual limit will be limited to the same amount as the associated student per year based on the Median Program Cost

Adjustments to Loan Repayment Programs

• The current methods will be available until 7/1/2026. It is unclear if payment method changes will be available to legacy borrowers after that date.
• New fixed standard methods have 10,15,20 and 25 years based on the debt amount. The 30-year option is eliminated.
• A new Income-Driven Repayment (IDR) method, the Repayment Assistant Plan (RAP), will use the reported borrowers’ AGI. The tax filing advantage for filing married and separate will still be available
  • New IDR will use a tier percent based on AGI, which replaces the Poverty Table Allowance
    • 1% – 10% based on the borrower’s AGI
  • Dependents of the borrower will provide a $50 allowance in the calculation
  • The minimum monthly payment will be $10
  • Negative amortization will not occur, so unpaid interest will not get added to the loan.
  • Possible principal reduction if payment does not cover a certain percent of interest and loan principal up to $50 per month
• The new rehabilitation program allows for two default occurrences.

New Loan Forgiveness Proposal

• Public Service Loan Forgiveness (PSLF) will be the same except for future medical residence programs
• Medical & Dental residence loans after 6/30/2025 will not qualify for PSLF
  • Must use the new RAP method of repayment to be eligible for PSLF
• Under the RAP method, loan forgiveness will occur after 30 years

Understand the Reasons for the Changes

Below is a chart of college cost inflation compared to the normal CPI.  The government and families can no longer afford these costs and debt.

According to a recent CATO study, the government is losing approximately $0.19 per dollar lent under the federal loan system.  This is unsustainable.  In a recent DOE announcement, nearly 25% of borrowers are either in default or delinquent.  Modifications need to be made before the total student loan program is eliminated.

The House Summary of the Student Success and Taxpayer Saving Plan

As you can see, there are a significant number of changes listed.  They will be confusing and challenging to manage, but they are required.  We must wait for the Senate’s proposal and the differences between the plans.

The most important part of the college decision is realizing that this is not a one-time decision. These decisions could impact your life for 30 years, which is often overlooked. PayForEd and our listed advisors have the expertise to help families make better decisions as these rules change.