CONTRIBUTORS
Bill Cass, CFP®, CPWA®
Director of Wealth Planning,
Franklin Templeton
The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduces significant changes to the federal student loan system. The legislation aims to simplify repayment options, adjust borrowing limits and modify the structure of educational financing.
Here are the key changes outlined in the bill.
Student loan repayment changes
New repayment options
The bill reduces the number of repayment plans from five to two and streamlines the choices available to borrowers. The two options are:
- Standard repayment plan. This plan allows borrowers to make fixed payments over a period of 10 to 25 years. For borrowers attempting to qualify for Public Service Loan Forgiveness (PSLF), only loans totaling less than $25,000 will qualify.
- Repayment assistance plan (RAP). This income-driven repayment plan caps monthly payments at a percentage of their income, up to a maximum of 10% of the borrower's adjusted gross income (AGI) for those earning $100,000 or more annually. Notably, many middle−income borrowers may see lower monthly payments compared to previous plans, although the RAP is less generous than the Biden−era SAVE plan, which is being phased out. Payments calculated under the RAP will also be reduced by $50 monthly per eligible dependent. A minimum payment of $10 per month is established under this plan, which applies only to borrowers with AGIs of less than $10,000.
Transition period
Current borrowers enrolled in the programs being eliminated will have until July 1, 2028, to switch to one of the new repayment plans. This transition period allows borrowers to adjust to the new system without immediate pressure.
Changes to PLUS loans
The One Big Beautiful Bill Act also eliminates the Grad PLUS program, which previously allowed graduate and professional students to borrow additional funds beyond standard limits. Additionally, new limits are set for Parent PLUS borrowers, capping annual borrowing at $20,000 for each dependent student, with an aggregate lifetime limit of $65,000. This change aims to control the amount of debt that students can incur while pursuing higher education.
Modifications to 529 plans
While the bill primarily focuses on student loans, it also impacts 529 savings plans. Specific changes to 529s include the doubling of distribution limits for eligible K-12 expenses from $10,000 to $20,000 and the expansion of qualified expenses. Previously restricted to tuition only, 529 plans can now be used to cover additional K-12 expenses such as books, educational materials, tutoring and placement exam fees. Additionally, the definition of qualified expenses for purposes of distributing funds from a 529 now include “qualified postsecondary credentialing expenses”.
An overhaul of federal student loans
The One Big Beautiful Bill Act represents a significant overhaul of the federal student loan system, aiming to simplify repayment options and control borrowing limits. Borrowers should stay informed about these changes, especially as many of the new provisions will not take effect until July 2026 or later. It is crucial for borrowers to consult with their loan servicers and the Department of Education to understand how these changes may affect their individual situations.
More families focus on saving for education
With rising costs and reductions in federal aid, more families are focusing on saving for future education costs. Changes to the federal student loan programs underscore the importance of saving. A 529 plan offers many tax advantages and has become a popular choice as a family prepares a comprehensive plan to save and pay for future education, including college.
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