Trump's 'big, beautiful bill' could mean 4 major changes for student loan borrowers

CNBC

02-06-2025

In the coming weeks, the U.S. Senate is expected to consider, amend and eventually vote on President Donald Trump's budget agenda, called the "One Big Beautiful Bill Act." The House passed the bill on May 22 by a single vote.
The massive bill includes a variety of provisions aiming to cut government spending and raise revenue to address the federal deficit. Major provisions include making Trump's 2017 tax policy permanent where it would otherwise expire at the end of the year and cutting Medicaid benefits.
Efforts to reform the federal student loan program are also included within the bill's 1,000-plus pages. The section addressing the nation's student debt would create a new income-based repayment plan, change eligibility rules for Pell Grants, aim to hold schools accountable for students' debt loads and more.
The bill has an uncertain future in the Senate, but as it stands, here are four of the impacts current and future federal student loan borrowers could see.
Critics of the current federal student loan system often contend that borrowers have too many repayment options, which are both confusing and overwhelming.
If enacted as currently written, future federal borrowers will have just two repayment plan options: an updated version of the standard repayment plan and a new income-based plan known as the Repayment Assistance Plan. Borrowers with loans disbursed before July 1, 2026 will have the option of keeping their current plan, with the exception of the income-contingent repayment plan.
Currently, the standard repayment plan sets borrowers' monthly payment at a fixed number, paying off their loans in 10 years. The new standard plan would offer a fixed payment with loan terms spanning from 10 to 25 years, based on the amount borrowed, according to a House committee fact sheet.
The Repayment Assistance Plan, or RAP, will replace the currently available income-driven plans except for the Income-Based Repayment plan. On RAP, borrowers' monthly bill would be between 1% and 10% of their income, depending on how much they earn. Borrowers would pay a minimum of $10 a month and any interest exceeding their minimum monthly payment would be waived.
Monthly payments for each income bracket are set as 1% of adjusted gross income for borrowers earning between $10,000 and $20,000 a year, 2% of income for those earning between $20,000 and $30,000 a year and so forth. Borrowers earning $100,000 or more will pay a maximum of 10% of their income on RAP.
The plan also offers a matching principal payment of up to $50, so borrowers whose monthly payment is less than that or only covers interest can still see their balance shrink. Borrowers can have any remaining debt forgiven after 30 years of on-time monthly payments. Payments on RAP will qualify toward Public Service Loan Forgiveness.
Undergraduates will have a borrowing cap of $50,000 over the course of their studies beginning with loans disbursed on July 1, 2026, up from the current $31,000 aggregate limit. Annually, students will have a cap on federal loans equal to the national median cost for their program or similar fields of study, and schools will have the ability to set lower limits.
Graduate borrowers will have a cap of $100,000 or $150,000 for professional programs, including medicine. Parents will also have a $50,000 total limit on federal loans. Parents and grad students currently have no borrowing limit.
The proposal also eliminates subsidized loans, which currently allow borrowers to avoid accruing interest on their debt during certain periods, such as while they are in school.
Under the proposal, borrowers will lose the ability to have their loan payments paused when they are facing economic hardship, including unemployment.
For loans disbursed after July 1, 2026, the proposal eliminates the option current borrowers have to request an economic hardship deferment for up to three years. Additionally, the limit on discretionary forbearances would drop to nine months over a 24-month period, from the current 12-month limit and three-year cumulative maximum.
The proposal limits future administrations' ability to alter repayment plans or enact related policies.
The bill would, going forward, require the Secretary of Education to demonstrate that any new regulations or executive actions would not increase costs for the federal government and prevents the Secretary from enacting any policies that do not meet that requirement.
Additionally, the bill would repeal regulations for schools like the gainful employment rule, which requires institutions to demonstrate their educational offerings are sufficient to help students land well-paying jobs. Schools that do not meet gainful employment expectations risk losing access to federal funding.
The gainful employment rule is intended to help students avoid low-value programs that leave them with too much debt and minimal earning potential.
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