The Bill and the Byrd (Blood)Bath

What to expect (and when) from the newly-signed reconciliation bill

I never wrote a post on the Senate’s version of the so-called Big Beautiful Bill, in part because I was busy doing other stuff, and in part because it was very likely that the Senate version would be what we’d ultimately end up with. Lo and behold, that’s what happened, though the Senate Parliamentarian had a field day and stripped out a bunch of provisions in the Byrd (blood)bath.

Now that the bill has been signed by the President, we can say for certain that some aspects of higher education financing are about to change quite a bit. In my opinion, most of these changes are for the better, largely thanks to the Parliamentarian. As a reminder, these three posts cover what was in the House bill, which was much farther reaching, had some good features (like more accountability for colleges), and had other aspects that were very bad, like cuts to Pell Grants and subsidized loans.

Changes to the FAFSA

The bill doesn’t make a ton of changes to the FAFSA. The only changes are to asset exemptions, which more closely align with how the Expected Family Contribution (EFC) was previously calculated before Congress “simplified” the FAFSA and launched the Student Aid Index (SAI). These changes exempt family business assets, including from residential farms, businesses of employees <=100 people, and family-owned commercial fishing operations from being considered assets, which is a big deal for families in some areas given these businesses can have a lot of value on paper but also be mired in debt (surprised #forgiveallfarmdebt hasn’t taken off tbh).

The one thing I’ll flag here is that these exemptions are supposed to be effective for the award year beginning 7/1/2026, which means the changes need to be ready for the FAFSA that is supposed to launch in this fall (which theoretically launches 10/1/2025). This is one of those changes that falls in the “how hard could it be?!” categories for people who have never done technology development, but I can say that the timeline here is not going to work for FSA. At this point, the 2026-27 FAFSA is likely almost done with development and is about to begin testing, and changes now could put the entire form launch in jeopardy. My guess here is that FSA will have to do some kind of band-aid workaround to get these changes in on time, then fix the technical debt they’ve built as part of the 2027-28 FAFSA development cycle.

Pell Grants

Pell was spared from the chopping block, which is a massive relief given the major cuts being made in the House bill. The only restrictions put on the program are disqualifying anyone with an SAI of twice the maximum annual Pell amount from receiving a grant, which is not unreasonable and likely won’t have a huge impact on students and families.

Congress also finally created the Workforce Pell program after talking about it nearly a decade, providing Pell Grants to students in programs between 8-15 weeks in length. A lot of the program has states themselves determining which programs are eligible, largely aligned with Workforce Innovation and Opportunity Act (WIOA) definitions of quality. These include things like ensuring the program doesn’t charge a ton compared to expected earnings, does a good job of having students finish the program, and that it succeeds in placing those completers into high-skill, high-wage (as compared to high school graduates) jobs. I’m very curious to see how this program fairs (and am very happy the unaccredited program provision was nixed in the bath) and how well the Department of Labor (and maybe ED?) is able to keep on top of the program quality aspects of Workforce Pell.

Loan Limits

The final bill ditches the absolutely absurd annual loan limit calculation devised by the House (thank dog) and instead keeps undergraduate limits where they are (which is needlessly complicated but whatever, keeping subsidized loans is a win) and only makes substantial changes to graduate and PLUS limits. While plain ol’ graduate students will still be eligible for $20,500 in unsubsidized Stafford Loans each year, professional students will get up to $50,000. But that’s to offset the termination of the graduate PLUS program, which currently allows graduate borrowers to take on an unlimited amount of debt. Graduate borrowers will be limited to $100K in debt, while professional students will be limited to $200K. This is a very good thing in my opinion, though I think it will be quite a shock to schools as they go through this transition.

Though there is the assumption that private lenders will step in the fill the void here, I don’t think that will happen very quickly, as the private market has pretty heavily stepped back from student loans in the last 15 years. All of the state student loan oversight apparatus that has been built in that time will certainly discourage many private lenders from entering the fray, and it wouldn’t surprise me if lower-ranked professional programs weren’t able to sustain themselves. This isn’t the worst thing, especially when it comes to law schools, but could be a big issue for medical schools and thus, the supply of doctors we have in this country, which is already too few for demand.

On the parent loan side, PLUS is limited to $20,000 per year, with a maximum of $65,000 for each dependent child. This still allows a parent to get into a good amount of debt without the income to support repayment, but I suppose is a good compromise for some legislators who don’t want to totally cut off the Parent PLUS spigot for schools who heavily rely on it.

Interestingly, the lifetime borrowing maximum imposed by this bill - which is $257,500 “without regard to any amounts repaid, forgiven, canceled, or otherwise discharged” - only applies to loans made to students and doesn’t account for Parent PLUS loans. This means parents with a bunch of their own debt and a bunch of kids can rack up a ridiculous amount of debt, and I think we’ll start to see this more and more in the news in the next 10-15 years as millennials who had no graduate borrowing limits (and thus borrowed a lot) start borrowing up to $65K more for each kid to go to college.¹ The new repayment plans (which I get to next) will probably be the biggest limiter in peoples’ choice to borrow, that is, as long as they consider ability to repay in their borrowing calculus.

Finally, schools can choose to limit borrowing by program, which has been something that community colleges in particular have wanted to do for quite some time. The bill also limits borrowing by enrollment intensity, meaning that if you enroll half-time, you can only get half of your loan eligibility. It works this way for Pell Grants, so it didn’t make too much sense to not have it this way for loans as well.

While these loan limits go into effect on 7/1/2026 (another fun, fast change that will need to be made by FSA), borrowers who are currently enrolled in a program can continue to access their current loan limits for 3 years or the remaining time left in their program, whichever is less. This really shouldn’t have much of an impact on current borrowers aside from those who just started a PhD program and aren’t funded, or who are not enrolled full-time but are relying on Grad PLUS to get themselves through school.

On the implementation side, the new limits and transition period are going to require a good bit of work for schools in particular, who rely on their technology vendors to update their systems to ensure borrowers are getting accurate loan eligibility. I can see this being kind of a mess as schools have questions and try to navigate the changes with an understaffed FSA who is already having a hard time responding to inquiries.

Student Loan Repayment

The final bill allows only two repayment plans for new borrowers as of 7/1/2026: a new standard plan and the Repayment Assistance Plan, or RAP. The new standard plan provides borrowers with a fixed monthly payment over a given repayment term based on how much the student borrowed:

• 10 years for balances less than $25,000,

• 15 years for balances between $25,000 and $50,000,

• 20 years for balances between $50,000 and $100,000, and

• 25 years for balances over $100,000.

RAP is the only IDR plan available, offers a $10 per month minimum payment, and increases payment amounts based on adjusted gross income of the borrower and their spouse, unless they are married filing separately. Monthly payment amounts will be reduced $50 per month per dependent, defined (thankfully) the same as it is under the tax code, meaning non-child dependents count (as do children over 16, which was a weird quirk of the House bill).

RAP also provides a subsidy for borrowers who don’t pay down their interest each month via their regular monthly payment, meaning that borrowers won’t see interest grow their balance even if they’re not able to pay what has accrued over the course of the month. There is another subsidy available where the government will match principal for borrowers who pay down less than $50 per month in principal via their regular monthly payment. So, if your payment is $50, with $20 toward interest and $30 toward principal, the government will pay an additional $30 down of your principal. This is pretty dang solid. But if you are required to pay $50 per month and that only goes toward interest, you get nothing toward your principal; rather, you just don’t have to pay the remaining interest that may have accrued. So, the government ends up helping people pay down their balances when they can already make some progress in hitting principal each month, but doesn’t help people pay down their balances when they make too little to touch principal. I don’t think borrowers can finagle their way out of this by paying more than their minimum payment, as the law states this applies to the borrower’s “regular” payment amount. I am not a huge fan of this subsidy structure and am curious about the impact on borrowers, particularly as it relates to income and amount borrowed. My instinct here says that this will mostly hurt graduate borrowers (who have higher interest rates and balances), but I’m sure this will have a negative impact on some undergraduates as well.

Also, new borrowers as of 7/1/2027 will not be able to use an unemployment or economic hardship deferment, nor will they be able to be in a forbearance for more than 9 months in a given 24-month period. Why 2027 and not 2026? No idea. Love the added complication though.

That’s called sarcasm.

RAP forgiveness is available after 30 years of qualifying payments. This is where things will inevitably get tricky, because while certain things are easier to count (such as months in an economic hardship forbearance), others aren’t, like if a payment is “on-time.” It will be up to the Department to define what an “on-time” payment is, and while you may think that’s obviously “a payment made in the amount due before midnight on the borrower’s due date,” you'd be wrong. There are a hundred permutations of the way people make payments, how payments are processed, and what constitutes as “past-due,” especially in a world where leniency toward repayment has been the norm. I’m curious how this is going to be defined and how it might change in the future based on where it’s defined (e.g. in regulations or in guidance) and the limitations placed on ED by this law (which I’ll get to later).

While a borrower must pay all loans in RAP (as long as those loans qualify for RAP, which isn’t the case for Parent PLUS loans or consolidation loans that pay off a Parent PLUS loan), RAP is no longer a “roach motel,” so borrowers can leave the plan and go back to the Standard plan. The calculation of that standard plan payment would be based on the borrower’s current outstanding principal and interest (not the original amount borrowed), so it probably won’t make a ton of sense for a borrower to get out of RAP unless they have a high income relative to their debt. But, borrowers can pay more on RAP (and standard) without penalty, so it doesn’t matter much one way or the other. However, if a borrower fails to certify their income for RAP, they get placed into a 10-year standard plan, which is likely to be WAY more expensive. Thankfully, there is a pretty significant change made to ED’s ability to keep borrowers in an IDR plan…

Automatic Enrollment in Income Sharing from IRS to ED

I really adore this change, and I’m shocked it was able to make it through all the procedural hurdles. Now, if a borrower uses their IRS income information to enroll in an IDR plan, they are automatically opted into continued sharing of that information. While they have the opportunity to opt out, I’m hopeful this will help keep more borrowers in an IDR plan. With the bill also requiring borrowers who rehabilitate or consolidate their debt out of default, this will go a long way in helping head-off redefaults.

What I’d really love is for borrowers to not have to opt in to sharing their income at all, but that’s probably too much to ask for in a reconciliation bill.

Changes for Current Borrowers

The biggest change for current borrowers is that they will still be able to use all of the existing repayment plans - including those created by regulations, like PAYE and SAVE. This dealt a huge blow to Republicans’ supposed simplification agenda and to the savings associated with the higher ed cuts. But current borrowers shouldn’t get too excited, as I expect that the Trump administration will promulgate regulations to end the SAVE plan at a minimum (which, by the way, is still enjoined by the courts).

The bill requires that ED get borrowers out of the SAVE forbearance and into one of the other plans (including RAP) by 7/1/2028, which is an interesting timeline that I assume is provided to give FSA time to implement RAP. This doesn’t mean, however, that borrowers in SAVE won’t be charged interest until 7/1/2028. I’m curious as to when the administration will pull the trigger on this, but I assume that since the bill is now law and it’s clear that current borrowers will at least have access to the existing suite of plans, the politicals at ED might make the call to turn interest back on within the next few months. For borrowers concerned about this, I recommend you follow the advice I posted here.

There are a few other notable changes that current borrowers should note. The first is that if they consolidate or borrow new loans after 7/1/2026, they will only be able to use the new standard plan or RAP. This is likely to cause a lot of frustration and confusion regardless of how clear FSA, servicers, and schools make it that a borrower will lose repayment options once they consolidate or borrow more.

And because mentioning PSLF is compulsory at this point, borrowers in medical residency programs will still be able to get credit toward PSLF, once again thanks to the Parliamentarian.

Oh! And all borrowers will now be able to rehabilitate out of default twice, which is great.

Limitations on ED’s Authority

This was pretty significantly stripped back compared to what the House initially described, thanks again to the Parliamentarian. While the House bill put extremely strict limits on the Secretary’s ability to regulate, the bill now just limits the Secretary’s ability to create new repayment plans. Note that this doesn’t mean the Secretary can’t get rid of plans that aren’t defined in statute, so we The implementation of Biden-era Borrower Defense and Closed School Discharge regulations are delayed (so that ED can strike them as part of the Trump administration’s recently convened regulatory agenda).

Dollhairs

There are two big buckets of money in this bill: one to address the Pell shortfall (woo hoo!) and one to fund FSA (woo hoo times two!).

Since some “advocates” are decrying the FSA money, let me spend a minute defending this. See, while the bill says that the additional funds are for servicing, let’s look more closely at the language, and also consider how money works.

See, the language doesn’t say “FSA must spend an additional $1B on loan servicing.” It says FSA can spend $1B for administrative costs, including (but not limited to) servicing. A few facts that matter a whole bunch here:

1. FSA has been essentially flat-funded by Congress since fiscal year 2022, when it got caught in between the Biden White House and Republicans in Congress on the matter of broad-based debt forgiveness. Since then, FSA has only received a very slight bump in FY2024, and it’s unlikely that FSA will get more from Congress via the annual funding process in the next two years. It is a miracle that FSA is still operating given its funding levels, but things are going to be dire for quite some time, even with this influx of money, some of which FSA will likely want to stash away to keep it afloat as flat funding rolls into the future. Anyone saying this is just a handout for servicers is being disingenuous and wants to further starve FSA of money to further undermine the stability of the aid system to further a (dead) forgiveness agenda.

2. Most of the work associated with implementing this bill will go to Accenture, who holds a whole bunch of FSA’s system and website contracts, including those systems that manage things like aid and loan eligibility and StudentAid.gov and all the tools on it. So, it’s unlikely that servicers will get much more, and if they do, it’ll be to do more, including more due diligence and outreach to at-risk borrowers, which was cut due to the budget crisis.

3. Money is fungible. FSA gets about $2 billion per year, about half of which pays for servicing. If this new billion supplants the old billion, guess what’s left? A billion. For FSA to spend on a whole bunch of other critical stuff. Even though the language doesn’t limit FSA’s spending to servicers in the first place.

Accountability

The bill really strips back the accountability provisions in the House bill, which is a shame, but what we got isn’t half bad. Basically, the bill requires graduates of bachelor and graduate degree (and graduate certificate) programs to earn more than the median high school (or in the case of graduate credentials, bachelor’s degree) graduate. If the program doesn’t meet this benchmark for at least two years, it can lose eligibility for federal financial aid programs.

My biggest concern here is schools actually collecting and reporting accurate earnings data and ED being able to validate the data and hold schools accountable. Time will tell here, but with the current size of ED and FSA I worry about how this will go.

All in All…

I kind of can’t believe they got it done. It’s nowhere near as ambitious as the House (or Senate) wanted, but frankly, the Parliamentarian really saved this thing from being a catastrophe. RAP will be more expensive month-to-month for borrowers, but I’m curious how the interest provisions will play out. Hope springs eternal that Congress will one day work on a bipartisan repayment fix, but given that they got Workforce Pell, one of the only remaining bipartisan priorities, done with this bill, I’m not hopeful.

Now that this whole saga has come to an end, I’ll be turning back to explaining some of the more mechanical aspects of how student loans work (like PSLF!) and do a little bit of dreaming on how FSA could be restructured as it will inevitably need to get rebuilt.

Until next time, I appreciate you.

1. Guess that’s just one more reason to beware the tradwife path.