How the Big Beautiful Bill Reshapes College Costs, Financial Aid, and Student Debt

Signed on July 4, 2025, the Big Beautiful Law H.R.1 introduces sweeping reforms to higher education funding.

What the One Big Beautiful Law Means for College Families

Backed by President Trump, the law reshapes how families pay for college, changing federal student loans, Pell Grants, and financial aid eligibility starting July 1, 2026.

Key Changes to Federal Student Loans

The One Big Beautiful Law introduces significant changes to federal student loans, affecting the amount students can borrow and their repayment terms.

Income-Based Repayment Plans Are Ending

The law eliminates current income-driven repayment plans (IDR) for new borrowers starting July 2026. Instead, students must choose between:
Standard Repayment Plan - The loan term length will be based on the total amount borrowed. This means that popular existing income-driven plans, such as Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR), will no longer be available for new borrowers. Repayment Assistance Plan (RAP) - A new option that counts toward Public Service Loan Forgiveness (PSLF) but has stricter eligibility rules. This new plan replaces the Income-Based Repayment Plan. Existing income-driven plans, such as Income-Based Repayment and Income-Contingent Repayment, will no longer be available to new borrowers. However, the definition of a public service job for PSLF excludes time served in medical or dental internships/residency programs for individuals who haven't borrowed specific federal direct loans by June 30, 2025.

No More Subsidized Loans

Undergrads will lose access to Direct Subsidized Loans, which currently pause interest during school. Only unsubsidized loans or private student loans will be available.

Graduate PLUS Loans Are Gone

Grad students will no longer qualify for Direct PLUS Loans , limiting federal options. The lifetime cap for federal loans increases to $200,000, prompting many borrowers to turn to private student loan lenders. Inside Higher Education predicts the Direct Plus Loan changes could mean fewer graduate students in the future.

Parent PLUS Loan Limits

Parents can now borrow up to $20,000 per year, with a total cap of $65,000 per child. These Parent PLUS Loans must be repaid on a fixed-term schedule, with no income-driven options. Additionally, stricter borrowing caps for Parent PLUS Loans may shift financial burdens back to students. Mark Kantrowitz, a notable financial aid expert, explains parent loans adjustments could have a substantial impact on African American students attending Historically Black Colleges and Universities (HBCUs); minority students are "more than three times as likely to borrow more than the new aggregate limit. The student, not the parent, often repays these loans. But, the student loan limit may be too low to replace the excess borrowing by parents at these colleges."

One Big Beautiful Law Impact on Financial Aid and Grants

One of the most substantial changes affects the Federal Pell Grant Program. Pell Grants are a form of financial aid that eligible students receive to help cover the costs of attending college. Pell Grants do not require repayment. Pell Grants are only awarded to qualifying students who complete the Free Application for Federal Student Aid (FAFSA).

Pell Grant Eligibility Tightens

Beginning in 2026: • Students enrolled less than half-time will not qualify. Full-time enrollment for undergraduate students is typically 12 or more credit hours per semester. • A Student Aid Index (SAI) over double the Pell Grant maximum disqualifies applicants. Today, the maximum Pell Grant for the 2025-2026 academic year is set at $7,395. The exact figures for any increased totals are usually released by the Department of Education closer to the start of the academic year. • Foreign income will now count toward eligibility. High school juniors who graduate in 2027 would be starting college around the time these new Pell grant amounts and eligibility expansions kick in. The Class of 2027 will be the first cohort to experience the changes to the Big Beautiful Law and Pell Grant.

Pell Grant Expansion for Workforce Programs

Students in vocational or trade school programs can now receive Pell Grants—something not previously allowed.

FAFSA Rule Restorations

Family-owned farms and small businesses will once again be excluded from FAFSA asset calculations, benefiting middle-income families with non-liquid wealth.

Financial Aid Based on Median Program Cost

Instead of a school's cost of attendance, aid calculations will use the national median cost for each program. This could hurt students attending more expensive schools.

Who is Most at Risk Under the New Rules?

The changes outlined in the Big Beautiful Law are likely to have disproportionate impacts on various student populations, including low-income families, first-generation students, and minority students. Low-income, first-generation, and minority students will face increased reliance on unsubsidized debt and private loans. The termination of subsidized loans for undergraduates could force these students to take on more unsubsidized debt, where interest accrues during their time in school, increasing their overall debt burden. The new loan limitations and repayment options could make it more challenging for these students to manage their debt after graduation, especially if they enter lower-paying professions. Students will be more likely to turn to private student loans to bridge the financial gap. Students attending private or high-cost public universities may see less financial aid due to standardized cost calculations. According to the National Association of Financial Aid Administrator (NASFA), the shift to basing need-based aid calculations on the median cost of attendance across all institutions could significantly impact students attending private or higher-cost public universities. These institutions often have higher tuition and fees. Suppose a lower national median determines federal aid. In that case, students might find a larger gap between the financial assistance provided and their actual costs, leading to a greater reliance on institutional aid or private student loans.

What's Happening to Scholarships and 529 Plans?

Scholarships and 529 Plans matter more than ever as tighter federal aid limits make them critical in reducing student loan debt. Students should use platforms like Fastweb to get matched to scholarships for which they qualify; applying early and often can maximize their chances of earning scholarships. While the bill doesn't directly alter 529 plans, the broader changes to federal aid might indirectly influence their utility. Students should tap into 529 plans to cover tuition and avoid unnecessary borrowing. As federal assistance becomes more constrained, the role of 529 plans in covering educational expenses could become even more vital for families looking to minimize loan debt. The ability to save tax-free for qualified education expenses remains a significant benefit!

What Should Parents and Students Do about These Changes?

Given the upcoming changes, proactive planning and informed decision-making will be essential for families navigating college costs. The four steps below are what students and families should do now:

Start Financial Planning Early.

Understand the impact of eliminating subsidized loans and new limits on Parent PLUS Loans. Families should start financial planning earlier than ever.

Compare Financial Aid Offers Carefully.

Don't rely solely on the sticker price—consider the full aid package, including various loan types and grants. Families should be prepared to model different borrowing scenarios and understand the long-term implications of higher unsubsidized loan amounts.

Explore Alternative Education Paths.

Workforce Pell Grants now cover vocational training, offering debt-free career pathways.

Follow updates from the U.S. Department of Education and consult with financial aid advisors to prepare for changes that will roll out in 2026.

The landscape of federal student aid is dynamic. Students and families must stay informed about any further clarifications or adjustments to the One Big Beautiful Law. Regularly checking the official Department of Education website, and consulting with financial aid advisors at prospective colleges will be key to understanding the evolving landscape of financial assistance, helping students and families make informed decisions for their educational journey.

Scholarships More Important Than Ever

The One Big Beautiful Law fundamentally changes how students pay for their college education. It emphasizes the importance of scholarships and early planning. With these sweeping reforms, students who prepare wisely will still have a path to an affordable education. Using Fastweb will not only help parents and students streamline the scholarship application process by matching them with scholarships that fit their profile, but it will also help bridge the financial aid gap and reduce student loan debt by using scholarships as a primary way to pay for school. Create your FREE Fastweb profile today!