Key Points on Congress Moves Forward Changes
- A new proposed reconciliation bill would overhaul federal student loans by setting stricter borrowing limits, ending Parent PLUS Loans, and creating new repayment rules for loans after July 1, 2026. Congress Moves Forward Changes
- Economic hardship and unemployment deferments, as well as some PSLF eligibility, would end for future borrowers.
- Pell Grants would see major changes, including the introduction of a Workforce Pell Grant and a cap on student aid index (SAI) eligibility.
The latest reconciliation bill that passed the House of Representatives last week proposes some of the most extensive changes to higher education funding and student loans in decades. This is the proposal; it’s NOT law yet. A full Senate vote and the President’s signature are still required. It’s important to note that the Senate could change some of the provisions below. Congress Moves Forward Changes
If enacted, the legislation would limit federal borrowing, end Parent PLUS loans, change repayment options, and reshape Pell Grant eligibility. The changes would primarily affect new borrowers taking out loans after July 1, 2026, but some changes take effect as soon as the bill is signed into law.
It’s important to remember that the legislation is just what passed the House. Some of these may not make the final bill, and they may change as well. That being said, many of these proposals mimic what was already proposed under the College Cost Reduction Act, and many are popular topics for Republicans. Congress Moves Forward Changes
Let’s break down some of the major proposals (though there are many others as well – the bill is 100+ pages long).
The annual limits would turn into an individual-specific calculation and vary by programme: the New Cost of Attendance Calculation minus any Pell Grant awarded to the student. Congress Moves Forward Changes
The maximum aggregate amount a student could borrow for an undergraduate degree would be $50,000, and that would also be the “parent loan matching limit,”, as described below. Congress Moves Forward Changes
The maximum limit a graduate student could borrow would be $150,000 – for a combined lifetime limit of $200,000, including both undergraduate and graduate debt.
Colleges would also gain new authority to impose their own lower loan limits for programmes at their discretion, provided they apply the limits equally across all students in a programme. Congress Moves Forward Changes
Eliminating PLUS Loans on Congress Moves Forward Changes
The bill would end Grad PLUS loans starting in the 2026-2027 school year. It would also restrict the Parent PLUS Loan programme. Congress Moves Forward Changes
Parents would only be able to borrow AFTER a student borrows the full amount they are allowed. There would also be an annual cap on parent PLUS loans at the student’s cost of attendance, by programme, minus the maximum in unsubsidised loans the student may borrow in a given year. Congress Moves Forward Changes
There would be an aggregate limit of $50,000 on Parent PLUS Loans in total a parent could borrow
Note: For borrowers already in school, there is a three-academic-year grace period before this change goes into effect, as long as you’ve already received one of these loans. Congress Moves Forward Changes
Eliminating Subsidized Loans
The proposal seeks to end subsidised student loans for new borrowers after 2026.
Note: For borrowers already in school, there is a three-academic-year grace period before this change goes into effect, as long as you’ve already received one of these loans.
Cost Of Attendance Changes
Finally, the calculation for cost of attendance is also set to change starting with the 2026-2027 school year to a formula called the median cost of college of the programme of study of the student. This number would be the median for the program across all colleges that offer it. Congress Moves Forward Changes
This number does not exist today – nobody has calculated it for every school and programme, so the figure would be totally new.
Repayment Plan Changes on Congress Moves Forward Changes
Another major shift would occur in repayment. For loans issued after July 1, 2026, borrowers would no longer be offered current income-driven repayment options like IBR, ICR, or PAYE. Instead, they would primarily be steered into a standard repayment plan. Only limited repayment assistance would be available for those facing hardship.
For borrowers already in repayment before July 1, 2026, the existing “old” IBR plan would be available for borrowers to change into, and it they will remove the “financial hardship” test so all borrowers will be eligible if you have a loan prior to 2026. Congress Moves Forward Changes
They are calling this “amended IBR” to reflect they are modifying the existing IBR plan.
Finally, they are making it so that even borrowers in the SAVE forbearance would transition into this amended IBR plan within 6 months of it becoming law. Congress Moves Forward Changes
Standard Repayment Plan
The new standard repayment plan would be a tiered repayment approach:
- Loans Under $25,000: 10 Years
- Loans $25,000 to $50,000: 15 Years
- Loans $50,000 to $100,000: 20 Years
- Loans Over $100,000: 25 Years
These plans pay off the full principal and interest over the time based on the loan balance.
Income-Based Repayment Assistance Plan
income-driven repayment This is a version of income-driven repayment that is designed to replace the existing plans. It’s complex. There’s no easy way to describe this other than to simply highlight what the law says: Congress Moves Forward Changes
Your monthly payment will be based on your Adjusted Gross Income (AGI), with some calculations:
- AGI ≤ $10,000: $120
- $10,001–$20,000: 1% of AGI
- $20,001–$30,000: 2% of AGI
- $30,001–$40,000: 3% of AGI
- $40,001–$50,000: 4% of AGI
- $50,001–$60,000: 5% of AGI
- $60,001–$70,000: 6% of AGI
- $70,001–$80,000: 7% of AGI
- $80,001–$90,000: 8% of AGI
- $90,001–$100,000: 9% of AGI
- AGI > $100,000: 10% of AGI
Calculate the Monthly Base Payment: Congress Moves Forward Changes
- Divide the applicable base payment by 12 (to convert it to a monthly amount).
- Subtract $50 for each dependent child (a child under 17 living with you and supported mostly by you).
Apply Minimums and Limits:
- If the result is less than $10, your monthly payment is set to $10.
- If your total remaining loan balance (principal + interest) is less than the calculated payment, you just pay the remaining balance.
Examples: Congress Moves Forward Changes
AGI = $25,000, 2 dependent children:
- Base payment = 2% of $25,000 = $500
- Monthly = ($500 ÷ 12) – ($50 × 2) = $41.67 – $100 = -$58.33
- Since it’s below $10, the payment is $10.
AGI = $60,000, no dependent children:
- Base payment = 5% of $60,000 = $3,000
- Monthly = $3,000 ÷ 12 = $250
- Payment is $250 (since it’s above $10).
Loan Forgiveness
You keep making monthly payments until one of these happens:
- Your loan balance (principal + interest) reaches $0 (you’ve paid it off), or
- You’ve made 360 qualifying monthly payments (that’s 30 years).
Payments are required every month unless you’re in an approved deferment or forbearance period.
After you’ve made 360 qualifying monthly payments (30 years), any remaining balance on your loans is forgiven (cancelled by the government), as long as:
- You participated in the Repayment Assistance Plan at some point.
- Your most recent payment before forgiveness was under this plan.
This plan (the Repayment Assistance Plan) is also eligible for Public Service Loan Forgiveness.
Negative Amortization
There is no negative amortisation. Negative amortisation happens when your payment doesn’t cover interest, and the unpaid interest gets added to your loan balance, making it grow. Here’s why that doesn’t happen:
- Interest Subsidy: If your monthly payment is less than the interest that accrues, the government waives the unpaid interest—it’s not added to your loan.
- Principal Reduction Help: If your payment reduces your principal by less than $50 (after covering interest and fees), the government adds an extra reduction to your principal, up to $50 or your payment amount (whichever is less).
Example:
You pay $40, but interest is $100:
- $40 goes to interest; the remaining $60 interest is waived (not added to your loan).
- No payment goes to principal, so the government reduces your principal by $40 (the lesser of $50 or your $40 payment).
Result: Your loan balance shrinks by $40, even though your payment was less than the interest.
Since unpaid interest is forgiven monthly and your principal can still decrease, your loan balance never grows due to unpaid interest.
Eliminating Economic Hardship And Unemployment Deferments
Economic hardship and unemployment deferments would also be eliminated for new loans. Borrowers would instead have access to limited forbearance options capped at nine months within a 24-month period.
Interest subsidies during medical or dental residencies would be time-limited as well.
The goal is to get borrowers into the Repayment Assistance Plan and repaying their loans.
PSLF Changes
Future medical (and dental) residents would also lose Public Service Loan Forgiveness (PSLF) eligibility unless they had borrowed prior to June 30, 2025. This modification is done by eliminating residency as a qualifying employment. Congress Moves Forward Changes
Individuals who, as of June 30, 2025, have borrowed a Federal Direct PLUS Loan or a Federal Direct Unsubsidised Stafford Loan for a programme of study that awards a graduate credential upon completion of such programme can include time served in a medical or dental internship or residency program (as described in section 428(c)(3)(A)(i)(I)) in the term ‘public service job.’
PSLF borrowers would now have to use the Repayment Assistance Plan.
Loan Rehabilitation
New changes will allow loan rehabilitation to get borrowers out of default to happen twice, not once.
Pell Grants And Workforce Grants
The bill would change the way Pell Grants are awarded by imposing a new limit based on the Student Aid Index (SAI), not just income. A student would not be eligible for a Pell Grant if their SAI is over a certain threshold, even if their family income would otherwise qualify. The goal here is to prevent “Pellionaires.”.
It would also create a “Workforce Pell Grant” for students enrolled in eligible short-term vocational programmes. The Workforce Pell would offer funding for non-degree programmes that meet specific federal criteria, expanding Pell access beyond traditional colleges.
The changes seek to target Pell Aid more closely at students with the greatest financial needs and support workforce training programs aligned with growing labour market demands.
Providing Loan Servicers More Funds
Recognising the administrative complexity of the changes, the bill would raise funding for student loan servicing. Servicers would receive higher payments per borrower to help manage the transition to new loan rules and repayment options.
In addition, the bill would impose stricter limits on the Department of Education’s authority to issue major regulatory changes affecting loan programmes without explicit Congressional approval.
Final Thoughts on Congress Moves Forward Changes
These changes to higher education can be considered massive. These changes impact both how families will pay for college and how borrowers will get out of student loan debt.
It’s important to note that these changes would only apply to loans made after July 1, 2026. So existing borrowers would be grandfathered into amended IBR. Furthermore, the new RAP would be eligible for PSLF, which is excellent news for borrowers pursuing public service jobs. Congress Moves Forward Changes
There are also some good aspects, like the “no negative amortisation” expansion and the new workforce grants.
However, the new RAP is complex. Very complex. I think borrowers are going to struggle to navigate this plan, and servicers are going to struggle to help them. That could be detrimental.
It will be important to see what Congress does with these plans moving forward.