How Trump's 'Big, Beautiful Bill' makes major changes to student loans and financial aid

Sweeping reforms to America's federal student loan system are on the horizon as House Republicans move forward with President Donald Trump's newly unveiled budget and tax bill, dubbed the "one, big, beautiful bill."

While much of the public focus has been on tax cuts and middle-class relief, a less-discussed but highly consequential section of the nearly 400-page bill targets the student loan and financial aid systems-bringing deep structural changes that could impact borrowers for decades.

The legislation aims to streamline the federal student loan program, limit government spending, and curb what some lawmakers see as predatory lending practices by colleges. But while the bill promises clarity, cost savings, and fairness, critics argue it could reduce access to higher education, particularly for low-income and graduate-level students.

Simplified repayment plans with longer paths to forgiveness

Under the new framework, the current labyrinth of repayment plans-including PAYE, REPAYE, SAVE, and IBR-would be replaced with just two: a standard fixed plan and a newly designed Repayment Assistance Plan based on income. Borrowers would make monthly payments between 1% and 10% of their income depending on how much they earn, and forgiveness would require 360 on-time payments, or 30 years-longer than the current 20-25 year options.

Importantly, the legislation bans the Secretary of Education from modifying either plan, blocking future istrations from making the more generous. The minimum monthly payment would be $10, even for the lowest-income borrowers-ending the current structure where some qualifying borrowers pay nothing.

Although the new plan eliminates subsidized loans and forbearance for financial hardship or unemployment, it introduces features like:

• Monthly interest waivers if borrowers meet their minimum payment
• A principal matching system of up to $50 per month
• Lower payments for parent borrowers

The SAVE, PAYE, and REPAYE plans would be terminated, with current participants pushed into a modified Income-Based Repayment plan charging 15% of discretionary income.

While proponents such as AEI's Beth Akers hail the simplification as "a massive improvement," others worry that long-term forgiveness becomes less achievable and loan balances harder to manage-especially if borrowers receive modest income increases that bump up their payments disproportionately.

Lower borrowing limits and tighter aid formulas

A major feature of the GOP proposal is the imposition of new borrowing caps. Undergraduate students would now be limited to $50,000 in federal loans, compared to current limits of $31,000 for dependents and $57,000 for independents. Parent PLUS loans, once uncapped, would now top out at $50,000 per parent, no matter how many children are in college.

Graduate students face even sharper restrictions. Grad PLUS loans would be eliminated and replaced with capped borrowing of:

• $100,000 for graduate degrees
• $150,000 for professional programs (like medicine or law)

Critics such as Julie Margetta Morgan from The Century Foundation argue the move could fuel private loan markets, where borrowers face higher rates and fewer protections. "It sounds like a massive play to increase the private student loan market," she warned.

The bill also introduces a new method for calculating financial aid, moving away from institution-specific costs. Instead, aid eligibility would be determined by the national median cost of similar degree programs. For example, an engineering student at MIT would receive aid based on the average cost of engineering programs nationwide, not MIT's actual cost of attendance.

While this change is intended to discourage institutions from inflating tuition to capture more aid dollars, it risks limiting college access for students attending higher-cost, elite universities-often the very students who need the most help.

As the bill moves through Congress, education policy experts and families alike are watching closely. If ed in its current form, the legislation could fundamentally change who can afford college, how long they stay in debt, and whether the government's role in higher education financing expands or contracts.

And with student loan forgiveness efforts already bogged down in legal battles, Trump's proposed reforms could set the tone for the future of federal education policy-for better or worse.