Trump’s 'Big Beautiful Bill' overhauls student loans, introduces higher ed reforms

President Donald Trump signed the “One Big Beautiful Bill Act” into law on July 4, delivering a sweeping overhaul of student loan repayment and higher education reforms. 

The legislation ends Biden-era loan forgiveness programs, tightens caps on student loan borrowing, holds universities accountable for graduates’ earnings, and raises taxes on universities. 

The education reforms are estimated to save taxpayers $349 billion, according to the Committee for a Responsible Federal Budget.  

Here’s a breakdown of the nearly 1,000-page spending package’s impacts on higher education: 

Student Loan Caps 

The law will cap how much graduate students and parents can borrow starting July 2026. 

Graduate students will be capped at $20,500 per year, with a lifetime maximum of $100,000. This falls below the total cost of a master’s degree, which typically ranges from $44,640 to $71,140, according to the Education Data Initiative.

Professional students in law and medical programs may borrow up to $50,000 per year, capped at $200,000 total. Earning a law degree in the U.S. costs an average of $206,000, while medical school students face a higher total average of approximately $230,000, according to Education Data Initiative.

Parents who borrow for their children’s education are limited to $20,000 per year with a $65,000 lifetime maximum using the Parent PLUS loan program.

Policy experts predict that these changes will shift borrowers toward private lenders.

“We’re going to see huge growth of the private student-loan market as a result of this bill,” said Bryce McKibben, senior director of policy and advocacy at the Hope Center for Student Basic Needs at Temple University, in an interview with MarketWatch. 

Student Loan Repayment

Starting July 2026, all new federal student loan borrowers will choose from only two repayment plans: a fixed monthly plan or a new income-based plan called the Repayment Assistance Plan (RAP). 

The fixed monthly plan functions like a traditional mortgage. Payments are determined by the size of the loan amount and will span 10 to 25 years.

The income-based plan, RAP, replaces Biden’s income-driven SAVE plan. It requires borrowers to pay between 1% and 10% of their income, with any remaining balance forgiven after 30 years. Unlike previous income-driven plans, RAP sets a mandatory minimum monthly payment of $10, regardless of income level. 

The federal government has offered income-driven repayment options since 1994, allowing borrowers to pay a percentage of their income with loan forgiveness after 20 to 25 years. The new RAP program both raises the minimum monthly payment and extends the forgiveness timeline to 30 years.

Borrowers currently enrolled in SAVE have until July 1, 2028, to switch to one of the new plans or be automatically enrolled in RAP.

Earnings-Based Accountability Measures

To hold colleges accountable, federal aid will be tied to graduate earnings.

Undergraduate programs whose graduates earn less than the median salary of a high school graduate in their state will lose access to federal loans. Graduate programs will face similar penalties if their graduates earn less than the median bachelor’s degree holder in the same field. 

“Colleges should have a stake in their students’ success and be responsible for reimbursing taxpayers for a portion of their losses if students don’t see financial value from enrolling in an institution and can’t repay,” the Committee on Education and the Workforce wrote about the legislation.  

“Institutions that continue to saddle their students with debt eventually face increasing penalties and risk loss of access to federal student aid,” the committee wrote. 

Workforce-Focused Grants

The law expands pell grant eligibility to include short-term workforce training programs and certifications in trades and other in-demand sectors.

The expansion is designed to make federal aid more accessible to adult learners, career-switchers, and those seeking fast-track alternatives to four-year degrees while addressing labor shortages. 

Programs must be between 8 and 15 weeks and are limited to full-time students. 

The expansion, which has received bipartisan support, “Ensures all programs provide education aligned with requirements of in-demand industries, meet employers’ hiring requirements, and provide students with relevant skills necessary for employment,” the Committee on Education and the Workforce wrote. 

“This legislation includes common sense policy solutions that invest in American workers. Expanding Workforce Pell grants to workforce-aligned students and restoring Workforce Pell funding shortfalls help improve workforce training at all levels,” said Michael Shires, Ph.D., Vice Chair of Educational Opportunity for the America First Policy Institute, in a written statement. 

University Endowments

The legislation imposes a new tiered federal tax on private university endowments, with rates as high as 8% for schools holding more than $2 million per student. The tiered system replaces the previous tax rate of 1.4%. 

Wealthy elite universities like Harvard, which has more than $2.9 million per student and a total endowment of more than $53 billion, fall into the highest tax bracket. 

Other Key Details 

Most provisions will take effect July 1, 2026, including new student loan borrowing caps, repayment plans, and pell grant eligibility changes. The university endowment tax takes effect immediately. 

Critics have expressed concern that the reforms could restrict access for low-income students and reduce their educational options.

Supporters argue the legislation will make college more affordable in the long-term. 

“Student loan limits, income contingent repayment…and reversing the Biden-era illegal student loan forgiveness activities are policies that work to create a drastically more affordable 4-year college degree,” said Shires. 

Campus Reform has contacted the Department of Education, the Education and Workforce Committee, the Committee for a Responsible Federal Budget, and America First Policy Institute for comment. This article will be updated accordingly. 

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