U.S. Tax & Spending Law Impact on Student Financial Aid

(Reuters) – U.S. President Donald Trump’s new tax and spending measures, signed into law on Friday, will affect federal financial aid for students and families.

Key Changes

• Loan Eligibility: The law modifies borrowing limits and eligibility for Pell Grants, which aid low-income undergraduates, and holds institutions accountable for graduates’ earnings. Changes take effect on July 1, 2026.

Graduate Lending and Loan Caps

• Grad PLUS loans, crucial for funding graduate education beyond the $20,500 annual limit of unsubsidized Stafford loans, will be eliminated. As of Q2 this year, 1.8 million Grad PLUS borrowers owe approximately $117.2 billion.
• New caps: Unsubsidized graduate borrowing limited to $20,500 per year ($100,000 lifetime); $50,000/year for professional programs like law and medicine ($200,000 lifetime).
• Parent PLUS loans adjustments will require unmet financial needs after maximum unsubsidized Stafford loans.

Loan Repayment Plans

• From July 1, 2026, new borrowers will have two repayment options: a standard plan over 10-25 years, and an income-based assistance program with a minimum monthly payment of $10, forgiving the balance after 30 years.

Deferment and Forbearance Changes

• The law eliminates Economic Hardship and Unemployment Deferment programs, critical for financially struggling borrowers. Interest will accrue during deferment/forbearance.
• Forbearance is now limited to nine months in a 24-month period, a reduction from the previous 12-month requests.

Pell Grants

• Pell Grants, awarded to low-income students, will now be limited based on other scholarships received. In 2022, 31.6% of undergraduates received Pell aid, averaging $4,875.

School Accountability

• A new accountability system mandates colleges maintain positive outcomes for students for federal student loan eligibility. Programs with low graduate earnings may lose funding. The law revises the gainful employment rule to ensure career training programs prepare students adequately for repayment.

Conclusion

These changes are aimed at making educational funding more sustainable, ensuring students’ borrowings align with potential earnings and maintaining accountability among educational institutions.