The “Big, Beautiful Bill” (BBB) passed over the July 4th weekend, so I wanted to dive deep into this new legislation, and break down three key areas that will directly impact your family’s financial strategy for funding higher education:
- Federal Student Loans
- Pell Grants
- 529 College Savings Plans
Let’s take an in-depth look at each of these categories below.
1. Federal Student Loans: A New Era of Borrowing and Repayment
The BBB brings some monumental changes to federal student loans, particularly for new loans originating after July 1, 2026.
- Subsidized Loans Remain Stable (A Win!): Let’s start with some good news. For undergraduate students, the core structure of federal direct subsidized loans in the student’s name remains largely unchanged. This was a critical point, as some initial proposals had these on the chopping block. Their stability provides continued support for students with demonstrated financial need by preventing interest from accruing while in school or during deferment.
- Significant Shifts for Graduate & Parent PLUS Loans: This is where things get really different.
- Grad PLUS Loans are Being Eliminated: If your future student is considering graduate school, be aware that the federal Grad PLUS loan program will be eliminated for new loans taken out after July 1, 2026. This means graduate students will face new federal borrowing limits: $20,500 annually with a $100,000 lifetime cap for most master’s degrees, and $50,000 annually with a $200,000 lifetime cap for doctoral and professional degrees. This will necessitate exploring alternative funding well in advance.
- Parent PLUS Loans Now Capped: For parents looking to help finance their child’s undergraduate education, Parent PLUS loans will now be capped at $20,000 per child annually and a lifetime limit of $65,000 per student, effective July 1, 2026. This is a huge change from the previous system, which allowed borrowing up to the full cost of attendance. It’s designed to encourage more affordable college choices and reduce default risk, but it also means parents need to plan even more strategically.
- Repayment Plans Get a Major Overhaul: For new federal loans taken out after July 1, 2026, the array of existing income-driven repayment (IDR) plans (like IBR, ICR, PAYE) will be replaced by just two options:
- The Revised Standard Repayment Plan: Payments will be fixed over a period of 10 to 25 years, depending on the total loan balance.
- The Repayment Assistance Plan (RAP): This new income-driven plan ties monthly payments to a borrower’s adjusted gross income over a 30-year term. While it offers an interest subsidy to prevent balances from ballooning and a $50 monthly reduction per dependent child, it also introduces a minimum monthly payment of $10 (unlike some older plans with $0 payments) and can, in some scenarios, be more expensive for borrowers with families. Importantly, it also creates a “marriage penalty” for couples both on the RAP plan.
- Changes to Deferment and Forbearance: The OBBBA also removes the options for deferment or forbearance due to unemployment or financial hardship for future borrowers. This means less flexibility if your student faces unexpected financial difficulties after graduation.
My takeaway for parents: Proactive planning for student loans is critical. Understand these new limits and repayment structures before your student borrows.
2. Pell Grants: Expanded Horizons, Specific Rules
Pell Grants continue to be a cornerstone of federal financial aid for low-income students, and the OBBBA clarifies and expands their reach in specific ways:
- Expanded to Workforce Readiness (Workforce Pell): Pell Grants are expanding to cover “workforce readiness” and short-term credentialing programs. Beginning July 1, 2026, “Workforce Pell” will allow students in eligible, shorter-term training programs (typically 8-15 weeks, leading to high-demand jobs) to receive Pell Grant funding. This is a significant step towards supporting diverse career pathways.
- Focus on Direct School Costs: The legislation re-emphasizes that Pell Grants should be used for “direct school costs.” This aims to ensure the funds directly support the educational experience.
- Maximum Award & New Eligibility Factors: The maximum Pell Grant award remains robust, currently at $7,395 for the 2024-25 academic year. However, aid for new Workforce Pell programs will be prorated based on program length. Furthermore, a new eligibility restriction states that students whose scholarships or other grants already cover their full cost of attendance may no longer be eligible for Pell Grants.
My takeaway for parents: Pell Grants remain an invaluable resource. If your student qualifies, understand that the rules are evolving to support both traditional and increasingly, shorter, career-focused programs.
3. 529 Plans: More Flexible Than Ever for Education and Beyond
The BBB brings some expansions to 529 college savings plans, making them even more versatile tools for your family’s educational and even retirement planning:
- Broader Qualified Expenses: 529 plans are seeing expansion, in that funds can now be used for a wider array of educational expenses beyond traditional college tuition, including:
- Apprenticeship programs: A direct answer to the growing need for skilled trades.
- Credentialing and continuing education programs: Supporting lifelong learning and career advancement.
- K-12 tutoring expenses, testing fees, and educational therapies: Providing more comprehensive support for younger students.
- The Game-Changing Roth IRA Rollover: This is perhaps one of the most exciting new features for parents concerned about over-saving in a 529 plan. Beginning in 2024 (and solidified by BBB), you can now roll over up to $35,000 (lifetime limit) from a 529 plan directly into the beneficiary’s Roth IRA, tax-free and penalty-free!
- Conditions Apply: The 529 account must have been open for at least 15 years, and any contributions made within the last five years are not eligible for rollover. The amount rolled over annually is also subject to the beneficiary’s annual Roth IRA contribution limits and earned income requirements.
- Why this matters: This new flexibility means that if your child receives scholarships, changes their educational path, or simply has leftover funds, those savings aren’t “trapped” and can now jumpstart their retirement savings.
My takeaway for parents: 529 plans are now even more powerful. Don’t shy away from maximizing your contributions, knowing you have more flexibility than ever before.
What Does This Mean for Your Family?
The BBB represents a significant recalibration of federal student aid. While some aspects offer greater flexibility (like 529s and Workforce Pell), others impose tighter controls and new limits (like PLUS loans and repayment plans).
Despite these changes, my advice remains the same: proactive, informed planning is your best asset. Don’t wait until college applications are due to think about funding. Start early, understand these new rules, and adjust your savings and borrowing strategies accordingly.
The landscape is shifting, but with careful guidance, we can ensure your family is well-prepared to navigate it successfully, so schedule time with me to find out how Capstone can help your family save thousands on college.
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Parts of this post were written with the assistance of Google Gemini
