After five years of policy shifts, paused payments, and temporary relief measures, the Federal student loan system is entering a new phase – one that's more stable, but also less generous and far more limited in its options. Before COVID, the system was complex but relatively stable. Then came years of borrower-friendly interventions, from suspended loan payments and interest freezes to sweeping (if temporary) forgiveness initiatives. Now, with the passage of the One Big Beautiful Bill Act (OBBBA), a new framework is taking shape – significantly narrowing borrowing options and increasing repayment obligations, particularly for parents and graduate students.
For financial advisors, the OBBBA represents a meaningful structural shift – especially in how much students and parents can borrow. While the past several years focused on temporary relief and evolving repayment plans for existing borrowers, the new borrowing limits will directly affect college funding strategies going forward.
Specifically, undergraduate borrowing limits remain unchanged, with a Federal loan cap of $27,000 over four years (or $31,000 for students taking longer to complete their degree). But for the first time in decades, OBBBA sets firm caps on other loan types: Parent PLUS loans will now be capped at $20,000 per child, with a $65,000 lifetime cap per student. Graduate PLUS loans will be eliminated entirely, leaving the Direct Unsubsidized Loan program as the sole source of Federal borrowing for graduate students – with pre-existing annual caps of $20,500 ($50,000 for professional degrees) and aggregate limits of $100,000 ($200,000 for professional students). The legislation also introduces a new combined lifetime borrowing cap of $257,600 across all Federal loan programs (excluding Parent PLUS loans).
In addition to new borrowing limits, the OBBBA brings major changes to student loan repayment plans. These include a balance-based Standard Repayment plan that will tie repayment terms to loan size, and a new Income-Driven Repayment (IDR) plan – the Repayment Assistance Plan (RAP) – that will become the default for many borrowers. RAP calculates monthly payments based on a progressive formula tied to Adjusted Gross Income, fully subsidizes unpaid interest (eliminating negative amortization), and offers forgiveness after 30 years of repayment. All legacy IDR plans will be phased out by July 2028.
Notably, the next few years will present an opportunity for financial advisors to provide critical student loan advice to clients transitioning between repayment plans – particularly for those whose monthly payments will change significantly under different plan options or for those who are pursuing Public Service Loan Forgiveness (PSLF). Advisors may also need to revisit college savings strategies with families as Parent PLUS loans become more restricted, which could mean exploring private lending or other alternatives where appropriate.
Ultimately, the key point is that while student loans may be entering a period of more stability, that stability comes with new complexity. Advisors who stay current on the evolving repayment rules, deadlines, legislative changes, and planning implications will be well-positioned to offer tremendous value – both to borrowers navigating repayment and to families rethinking how they'll pay for college!
