A new student loan repayment plan seeks to ensure that loan balances of low-income borrowers do not increase despite them making payments.
The Department of Education (ED) issued a proposal to reduce the cost of higher education and simplify federal student loan repayment, according to a statement published on Jan. 29.
Through the One Big Beautiful Bill (OBBB) Act (also referred to as the Working Families Tax Cuts Act), passed by Congress last summer, changes to the federal student loan program reduce tuition costs by addressing overborrowing, implementing loan caps for graduate education programs, and streamlining repayment options. The latest proposal is the next step in implementing these changes.
The OBBB Act “eliminates the Grad PLUS program, which allowed unlimited borrowing and contributed to rising graduate tuition, and the proposed rule introduces commonsense annual and aggregate loan caps for graduate and professional programs,” the department said.
Graduate student borrowing accounts for a rising share of the federal government’s annual aggregate student loan disbursements. These loans also account for the majority of balances in income-driven repayment plans, increasing the burden of student debt on borrowers and taxpayers.
Starting in July, OBBB limits federal loans for new graduate students to $20,500 per year and $100,000 in aggregate. For new professional students, the annual limit is $50,000, with an aggregate threshold of $200,000.
The new loan limits will require educational institutions to prioritize students, incentivizing them to reduce tuition and fees, thereby making higher education more affordable, the department said. The limits also prevent students from being burdened with high levels of debt after graduating from college.
“For years, American families have rightfully been concerned about the escalating cost of higher education, the long-term—and often negative—effects of student loan debt, and how their postsecondary education translates into real-world jobs and higher wages,” Undersecretary of Education Nicholas Kent said.
“President Trump’s Working Families Tax Cuts Act offers a once-in-a-generation opportunity to lower tuition costs and improve the student loan system to better support borrowers.”
Moreover, the OBBB Act eliminated the myriad repayment plans, simplifying them to two options: a standard repayment plan and an income-driven plan.
The standard plan offers borrowers fixed-term periods of 10 to 25 years, giving those with higher debt more time to repay their obligations.
The new income-driven plan, known as the Repayment Assistance Plan, aims to align a student loan’s repayment with the borrower’s ability to pay. It aims to ensure that low-income borrowers do not see their loan balances grow despite making payments.
The ED issued a “Notice of Proposed Rulemaking” regarding these changes, inviting public comments for 30 days, after which the department will analyze the comments and finalize the rule.
