Congress Unveils Plan To Change Student Loan Repayment Plans
The latest reconciliation bill set for review in the House Committee on Education and the Workforce proposes some of the most extensive changes to higher education funding and student loans in decades. This is the papered proposal, it’s NOT law yet.
If enacted, the legislation would limit federal borrowing, end Parent PLUS loans, change repayment options, and reshape Pell Grant eligibility. The changes would primarily affect new borrowers taking out loans after July 1, 2026, but some changes take effect as so as the bill is signed into law.
It’s important to remember that this is the first work-up of proposals that are actually in print. Not all of these may make the final bill, and even then, they may change as well. That being said, many of these proposals mimic what was already proposed under the College Cost Reduction Act, and many are popular topics for Republicans.
Let’s break down some of the major proposals (though there are many others as well – the bill is 100+ pages long).
There are a myriad of changes to student loans that impact borrowers.
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.
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.
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.
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.
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.
The new standard repayment plan would be a tiered repayment approach:
These plans pay off the full principal and interest over the time period based on the loan balance.
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:
Calculate the Monthly Base Payment:
Apply Minimums and Limits:
Examples:
AGI = $25,000, 2 dependent children:
AGI = $60,000, no dependent children:
Loan Forgiveness
You keep making monthly payments until one of these happens:
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:
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:
Example:
You pay $40, but interest is $100:
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
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.
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.
New changes will allow loan rehabilitation to get borrowers out of default to happen twice, not once.
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.
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.
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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