By NASFAA Policy & Federal Relations Staff ,  Maria Carrasco, NASFAA Staff Reporter ,  Hugh T. Ferguson, NASFAA Managing Editor

Republicans completed their months-long legislative effort to implement sweeping tax changes through the reconciliation process, with several provisions directly impacting higher education programs.

President Donald Trump signed the bill into law on July 4, meeting Republican leaders’ self-imposed deadline to complete the legislation.

While NASFAA expressed relief that the final version of the bill eliminated several troubling provisions from earlier proposals, such as major changes to the need analysis formula, Pell Grant eligibility, and student loan programs, NASFAA President and CEO Melanie Storey noted that significant provisions are slated to take effect on July 1, 2026.

“The bill creates aggressive deadlines to implement significant new provisions impacting millions of students,” Storey said. “We look forward to working with the Department of Education on a clear and transparent process to ensure that all partners are prepared to support our students through these changes.”

The law also contains substantial changes to programs authorized by the Higher Education Act, which Storey said still needs to undergo a meaningful reauthorization process.

“Instead of focusing on a thorough and much-needed reauthorization of the Higher Education Act to address critical issues related to college access and affordability, this piece of legislation sought to adhere to an arbitrary deadline with policy that could limit opportunity and access for low-income students seeking to pursue post-secondary education,” Storey added.

Here’s how the law impacts several aspects of higher education policy:

NASFAA has published several explainers of previous versions of the legislation, comparing the House’s version to the Senate's. That analysis can be found on the 2025 Budget Reconciliation Web Center. Ultimately, the House approved the Senate’s revisions to the House bill. The analysis below reflects the final provisions that have been signed into law. 

Student eligibility: Previous versions of the bill proposed cutting Title IV eligibility for students who belong in specific non-citizen categories. This provision was removed after the Senate parliamentarian ruled that it did not abide by the Byrd Rule, and consequently, the law does not include any of these changes to student eligibility.

Median cost of college: An earlier version of the bill included a provision regarding changing the calculation of a student’s need as the median cost of college (MCOC) minus the Student Aid Index (SAI) minus other financial aid. The law does not include this provision, since it was stripped out by the Senate. 

Asset Exemptions: The law reinstates the exemption of family farm and small business assets from the SAI calculation and expands this asset exemption to family-owned commercial fisheries, with an effective date of July 1, 2026.

Subsidized loans: An earlier version of the bill sought to eliminate subsidized loans for undergraduate students. The law does not include this provision, and undergraduate students would retain eligibility to receive subsidized loans.

Parent PLUS loans: An earlier version of the bill proposed that parents could only borrow if their dependent student has already taken out their maximum annual unsubsidized loan amount.

The law does not require students to have borrowed the maximum unsubsidized loan in order for parents to borrow a PLUS loan, and includes new Parent PLUS loan limits: a $20,000 per year cap per dependent student and a $65,000 aggregate limit per dependent student (without regard to amounts forgiven, repaid, canceled, or discharged). These provisions are effective July 1, 2026.

Undergraduate loan limits: The law does not include any changes to undergraduate loan limits and maintains the current limits for annual and aggregate borrowing.

Graduate PLUS loans: Like earlier versions of the bill, the Law eliminates the Graduate PLUS program, effective July 1, 2026, with legacy provisions for current borrowers to complete their program of study.

Graduate loan limits: The law caps the annual graduate loan limits at $20,500 for graduate students and $50,000 for professional students. The aggregate limit is capped at $100,000 for graduate students and $200,000 for professional students.

Lifetime borrowing cap on all federal loans: The law contains a $257,500 borrowing cap on all federal student loans, excluding borrowed Parent PLUS loan amounts.

Annual, aggregate, and lifetime loan limits effective date: Loan limits become effective on July 1, 2026, with a legacy provision included for current borrowers to borrow under current limits for the remainder of their expected time to credential.

Institutionally-determined loan limits: The law includes a provision allowing institutions to impose their own program-level loan limits and becomes effective on July 1, 2026.

Loan proration for less-than-full-time enrollment: The law requires institutions to prorate annual loan amounts in direct proportion to the percent of full-time the student is enrolled.

Repayment Plan options for New Borrowers: Borrowers with new loans made on or after July 1, 2026 can be repaid using only two plans: a new standard repayment plan with fixed monthly payments and fixed terms ranging from 10 to 25 years based on the amount borrowed and the new income-based repayment plan, RAP.

Repayment Plan options for Current Borrowers: Borrowers with no new loans made on or after July 1, 2026 can continue to be eligible to enroll in the current Standard, current Income Based (IBR), Graduated, and Extended repayment plans, and could also opt in to the new RAP. Current borrowers enrolled in ICR, PAYE, or SAVE plans must transition to a new repayment plan by July 1, 2028. If no selection is made by that date, they will be moved into RAP.

Repayment Assistance Plan (RAP) terms:. A provision from an earlier version would not allow borrowers to switch from RAP to the standard repayment plan once enrolled in RAP. The Law does not include this limitation.

Repayment Assistance Plan monthly payments calculation: Borrowers who either don’t have an Adjusted Gross Income (AGI) or whose AGI doesn’t reasonably reflect the borrower’s current income are required to provide the Department of Education (ED) with documentation to calculate their monthly payments.

Repayment Assistance Plan monthly payment amount: The law requires a $10 minimum monthly payment under RAP, and a borrower’s RAP monthly payment will be based on their AGI and number of dependents. Income and dependents are calculated separately for married borrowers who filed taxes separately from their spouses.

Income Based Repayment (IBR) plan changes: An earlier version of the bill proposed to remove the cap on monthly payments made under the IBR plan to no more than the borrower would have paid under the Standard 10-year repayment plan, while the law retains the cap. The law also removes the requirement for borrowers to demonstrate a partial financial hardship in order to enroll in IBR. Additionally, the law retains cancellation for balances of loans repaid under IBR at 25 years.

Economic Hardship Deferment and Unemployment Deferment: The law eliminates the Economic Hardship Deferment and Unemployment Deferment for borrowers with an effective date for borrowers who received a loan on or after July 1, 2027. 

Public Service Loan Forgiveness (PSLF): An earlier version of the bill excluded time spent in a medical or dental internship or residency program from counting towards Public Service Loan Forgiveness (PSLF). The law does not include this provision, meaning time spent in a medical or dental internship or residency program does count toward PSLF. 

PROMISE Grants: An earlier version of the bill included the creation of a new campus-based Promise Grant program. The law does not include this provision. 

Addressing the Pell Grant shortfall: The law adds about $10 billion in mandatory funding for the Pell Grant program for FY 2026. 

Workforce Pell Grant program: The law creates a Workforce Pell Grant program, but excludes these grants from being available to remedial, non-credit, English language learning, or study abroad coursework. Unaccredited providers would be excluded from Work Force Pell eligibility.

Full-time Pell Grant definition: The law retains the definition of a full-time student at the current 24 credit hours per academic year. 

Pell Grant for students enrolled less than half-time: The law maintains Pell Grant eligibility for students enrolled less than half-time.

Pell Lifetime Eligibility Usage (LEU): The law retains a previous provision stating that students who receive grants or scholarships covering their entire cost of attendance (COA) would be ineligible to receive a Pell Grant, even if otherwise eligible for the program. However, the law does not include an earlier provision where students would see their Pell Lifetime Eligibility Usage (LEU) reduced as if they had been awarded Pell.

Pell Grant Eligibility with a High SAI: The law includes a provision that prevents students from receiving Pell Grants if their SAI exceeds twice the maximum Pell Grant award, with an effective date of July 1, 2026.

Foreign Income and Pell Grant Eligibility: The law requires that foreign income be included in the income calculation for Pell Grant eligibility.

Institutional accountability and risk-sharing: An earlier version of the bill included the creation of an institutional risk-sharing model for schools participating in the federal Direct Loan program that would become effective in the 2028-29 academic year. 

The law does not include a risk-sharing model, but it does create an accountability measure for institutions. For undergraduate programs, the provision compares the median earnings of completers four years after program completion with the earnings of “working adults” with only a high school degree or GED who are not enrolled in higher education. For graduate programs, it compares the median earnings four years post-enrollment with the earnings of “working adults” with only a bachelor’s degree who are not enrolled in higher education.   

Programs failing to meet this earnings threshold in 2 of 3 years will lose eligibility to participate in the Direct Loan Program, with the option to reapply after 2 years. After one year of failure, institutions have to provide disclosures to students. This measure would become effective on July 1, 2026. 

Regulatory relief: An earlier version of the bill proposed eliminating the 90/10 rule entirely from the statute, and repealed the 2022 closed school discharge and borrower defense to repayment rules promulgated under the Biden administration. It also removed the phrase “gainful employment” from several definitions throughout the Higher Education Act (HEA).

The law does not include any language related to the 90/10 rule or gainful employment, but delays, rather than repeals, the 2022 rules on closed school discharge and borrower defense to repayment. As such, these rules would not be in effect "for loans that first originate before July 1, 2035."

Endowment tax: Institutions that serve less than 3,000 students are exempt from the proposed endowment tax.

As a reminder, the reconciliation process is a unique legislative tool used to implement certain elements of federal spending. This specific round of reconciliation was separate from the administration's budget request and the upcoming appropriations process for fiscal year 2026. The appropriations process is currently facing a deadline of September 30, and Congress is expected to consider markups and floor action later this summer. NASFAA has more details of the President's budget request and will continue tracking the ongoing appropriations cycle.

Stay tuned to Today's News for additional coverage and more details on guidance associated with provisions in this law.

Publication Date: 7/7/2025

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