Federal student loan repayment will undergo significant changes beginning next year due to the recent passage of the “One Big Beautiful Bill.” Additionally, discussions and actions by the current administration indicate a move to restructure or downsize the Department of Education significantly.
Institutions of higher education should take proactive steps to inform their staff and student loan borrowers of these future changes and take immediate steps to address the pending record-high student loan default rates.
Student Loan Delinquency Crisis: CDRs Are at Stake
We are currently in a national student loan delinquency crisis that far predates these new changes. Only 44% of the 35 million eligible federal student loan borrowers are currently making payments. More alarmingly, nearly 6 million borrowers were reported to credit bureaus this year for late payments.
Without effective default aversion strategies in place that can adapt to this new environment, your institution’s Cohort Default Rates (CDRs) are poised to dramatically increase, potentially two to three times higher than your pre-pandemic numbers. This is not merely a hypothetical; it’s an imminent threat to your institutional health and Title IV eligibility.
New Borrowing Limits and Repayment Options
Financial Aid Directors tirelessly ensure students can access the funding they need. However, the “One Big Beautiful Bill” introduces stringent new borrowing limits and completely overhauls the federal repayment plan menu, effective for new loans taken on or after July 1, 2026.
New Borrowing Limits Effective for New Loans Taken After July 1, 2026
These changes represent a significant departure from the current system, where Parent PLUS and Grad PLUS loans generally allowed borrowing up to the Cost of Attendance (COA) minus other aid.
| Loan Type / Borrower | Current Federal Borrowing Limits: Pre-July 1, 2026 | New Federal Borrowing Limits: On or After July 1, 2026 |
| Parent PLUS Loans | Up to Cost of Attendance (COA) minus other aid | Annual: $20,000 per year per student Aggregate (Per Student): $65,000 total |
| Grad PLUS Loans | Up to Cost of Attendance (COA) minus other aid | Eliminated for new students. Borrowers who have already received a Grad PLUS loan before June 30, 2026, can continue borrowing until the end of their program, or three academic years, whichever is first. |
| Direct Unsubsidized Loans | Standard Grad Unsubsidized: $20,500 annual, $138,500 aggregate (including UG debt) | Professional Degrees: Annual: $50,000 Aggregate: $200,000 total (not including undergraduate debt) Advanced Degrees: Annual: $20,500 Aggregate: $100,000 total (not including undergraduate debt) |
| Overall Lifetime Limit (Excludes Parent PLUS) | Varies by loan type, up to COA for PLUS loans | New Aggregate Lifetime Limit: $257,500 for all federal loans (excluding Parent PLUS) |
Implications of New Borrowing Limits:
Significant Funding Gaps: For students in high-cost professional programs or those with substantial Parent PLUS reliance, these new caps will create considerable funding shortfalls.
Increased Reliance on Private Loans: We anticipate a significant shift towards private student loans to bridge these gaps, introducing new complexities and potential risks for borrowers
New Repayment Plans Effective July 1, 2026 for New Loans
The new legislation eliminates nearly all existing income-driven repayment (IDR) plans, including SAVE, PAYE, and ICR by July 1, 2028, replacing them with just two options for new borrowers. IBR (Income-Based Repayment) will remain as an option for existing borrowers who do not take out new loans after July 1, 2026. Those in phasing-out plans will be required to transition..
1. New Standard Repayment Plan:
Fixed Monthly Payments: Consistent, fixed payments.
Fixed Repayment Period: Determined by the borrower’s total outstanding principal at entry into repayment.
- Less than $25,000: 10 years
- $25,000 to less than $50,000: 15 years
- $50,000 to less than $100,000: 20 years
- $100,000 or more: 25 years
2. Repayment Assistance Plan:
- Income-Driven: Monthly payment based on a formula using Adjusted Gross Income (AGI) and number of dependents.
- Dependent Deduction: A $50 per dependent deduction applied to the base payment.
- Minimum Payment: A $10 minimum monthly payment, even for those with no income, which could push the most vulnerable into default.
- Payment Application: Payments apply first to interest, then fees, then principal. Any principal not paid is deferred.
- Loan Forgiveness: Remaining balance (principal and interest) canceled after 360 “qualifying monthly payments” (30 years).
- Interest & Principal Benefit: If the monthly payment doesn’t cover the interest, the interest is waived. The program also reduces the loan’s principal by up to $50 per month if the payment wouldn’t already reduce the principal amount.
- Flexibility: Borrowers can switch between the new Standard Repayment Plan and RAP at any time.
Pell Grant Eligibility Adjustments:
While the maximum Pell Grant award remains subject to annual Congressional determination, new eligibility restrictions will apply:
- Students whose Student Aid Index (SAI) is double the maximum Pell Grant or more will be ineligible.
- Students receiving other non-Title IV grant aid equal to or exceeding their full Cost of Attendance will also be ineligible.
Navigating the Federal Landscape: Don’t Go It Alone
Beyond these monumental policy changes, the very federal infrastructure designed to administer student aid is experiencing unprecedented disruption. Significant staff reductions at the U.S. Department of Education (ED) and its Office of Federal Student Aid (FSA) are already leading to reduced support and increased processing delays for financial aid offices nationwide. This internal instability, coupled with ongoing discussions about the future structure of federal student aid administration, creates an environment of immense confusion and uncertainty for both institutions and borrowers.
Don’t let the complexity and chaos of these federal shifts overwhelm your staff or jeopardize your institution’s Cohort Default Rates. IonTuition understands the heavy lifting required to navigate this evolving landscape, and we’ve been the experts in default aversion for over 15 years. Contact sales@iontuition.com today to launch your default aversion plan.