A sweeping overhaul of federal student lending under President Donald Trump's One Big, Beautiful Bill Act is set to reshape how millions of students finance higher education beginning in 2026, prompting warnings from policy analysts that borrowers should prepare for higher debt burdens and reduced access to federal aid. The Department of Education's changes, which affect loan limits, repayment structures and eligibility for forgiveness, represent the largest restructuring of the federal loan system in more than a decade.
The reforms, part of a broader package that merges changes to education, immigration, taxes and federal spending, are presented by the administration as a shift toward "simpler, leaner government." Supporters say the legislation reins in long-term federal liabilities, while advocacy groups caution that the new framework could push students toward costlier private loans or deter some from pursuing graduate degrees altogether.
At the center of the overhaul is a new federal lending cap. Beginning July 1, 2026, graduate and doctoral students will face an annual limit of $20,500 and a lifetime ceiling of $100,000. Although professional fields-such as medicine, law and dentistry-are expected to qualify for higher federal limits, with an agency committee proposing lifetime caps of $200,000, the changes still fall short of average medical-school debt levels.
The legislation also eliminates the Graduate PLUS program for new borrowers starting in 2026, ending a decades-long option that allowed graduate students to borrow up to the full cost of attendance. Without Grad PLUS loans, many students will face substantial gaps between federal loan availability and actual tuition, making private financing a more likely necessity.
Repayment structures will undergo significant consolidation. The Department of Education plans to retire multiple repayment programs-including Income-Contingent Repayment, Pay As You Earn, and Savings on a Valuable Education-by July 2028. They will be replaced with two streamlined income-driven options and a new Repayment Assistance Plan, reducing flexibility for borrowers who built long-term financial planning around existing models.
Tax treatment of forgiven student debt is also set to change. The American Rescue Plan previously exempted income-driven forgiveness from taxation through the end of 2025. Under the new law, any debt forgiven after 20 or 25 years under those plans will be treated as taxable income beginning January 1, 2026. Programs such as Public Service Loan Forgiveness and Total and Permanent Disability discharge will remain tax-free.
Parent PLUS borrowers face some of the most immediate deadlines. Parents must consolidate through the Direct Consolidation Loan program by July 1, 2026, to retain income-driven repayment access. They must also make at least one payment under Income-Contingent Repayment before July 2028 to transition into future income-based plans. Failure to meet the deadlines would effectively eliminate their eligibility for forgiveness.
Medical, dental and other professional students may be disproportionately affected. Average medical-school debt now exceeds $232,000; without Grad PLUS loans, those pursuing high-cost degrees may be forced into private lending markets that lack federal protections and tie borrowers to variable interest rates. Nursing programs may also be affected as the Department narrows which credentials qualify as professional degrees, raising concerns that the reforms could intensify staffing shortages in healthcare.
Borrowers weighing graduate school or consolidation options are being urged to act before the new regulations take effect. Advocacy groups say students should apply under existing rules in 2024 and 2025 to secure current repayment choices and loan limits, though some details remain unclear-particularly whether students eligible for Grad PLUS after 2026 may reject that option to access the new $50,000 unsubsidized loan cap.
