On July 4, 2025, President Trump signed the 2025 Reconciliation Tax Bill, now popularly known as the One Big Beautiful Bill (OBBB). This sweeping legislation focuses on the administration’s domestic economic priorities and introduces significant changes to federal financial aid and student loan repayment—affecting current borrowers, future students, and employers alike. 

Key Provisions for Employers

The bill makes permanent a popular tax benefit originally introduced in the CARES Act: 

• Tax-Free Employer Contributions: Employers can now permanently contribute up to $5,250 per year toward an employee’s student loans tax-free. 

• Employee Benefit: Employees do not pay income tax on these contributions. 

• Employer Incentive: Contributions are tax-deductible as a business expense. 

• Covers All Loans: Applies to both federal and private student loans. 

• Inflation Adjustment: Starting in 2026, the $5,250 cap will be indexed to inflation. 

For New Borrowers (Loans Disbursed After July 1, 2026)

Two Repayment Options: 

1. Standard Plan (Fixed Payments Based on Loan Size): 

• Under $25,000: 10-year term 

• $25,001–$50,000: 15-year term 

• $50,001–$100,000: 20-year term  

• Over $100,000: 25-year term 

2. Repayment Assistance Plan (RAP): 

• Monthly payments based on 1-10% of AGI 

• Minimum payment $10/month 

• Scales up to 10% of AGI for incomes over $100,000 

• $50/month discount per dependent 

• Spousal income excluded if filing separately 

• No interest accrual on unpaid interest 

• Forgiveness after 30 years (360 payments) 

Updated Loan Limits 

• Undergraduate: No change 

• Graduate: $20,500/year, $100,000 total 

• Professional (e.g., law, medicine): $50,000/year, $200,000 total 

• Parent PLUS: $20,000/year per student, $65,000 total 

• Grad PLUS Loans: Eliminated 

For Existing Borrowers (Loans Disbursed Before July 1, 2026)

• All current federal repayment plans—including ICR, PAYE, and SAVE—will be phased out by July 1, 2028. 

• Borrowers must switch to: 

• Modified IBR: 

• 15% of discretionary income (pre-2014 loans), forgiveness after 25 years 

• 10% of discretionary income (post-2014 loans), forgiveness after 20 years 

• RAP, if eligible 

• Standard Plan, as outlined above 

Parent PLUS Borrowers

For New Loans (After July 1, 2026): 

• Annual limit: $20,000 

• Lifetime cap: $65,000 

• Only eligible for the Standard Plan

For Existing Loans: 

• Parent PLUS borrowers who borrowed before the Bill takes effect may have a three-year grace period to continue borrowing under the current terms 

• May consolidate by June 30, 2026 and apply for ICR by June 30, 2028 

• Will be transitioned to IBR with forgiveness after 25 years

Graduate PLUS Loans 

• Eliminated for new borrowers 

• Existing borrowers may continue borrowing under current terms through the 2028–29 academic year 

• Federal Direct Loan limits for graduate students have been increased 

Public Service Loan Forgiveness (PSLF) 

• Still available under the new system 

• Requires 120 qualifying payments (10 years) while working full-time for a qualifying employer 

• Must be enrolled in a qualifying plan (e.g., IBR or RAP) 

Deferment, Forbearance & Rehabilitation 

• Economic hardship and unemployment deferments: Eliminated 

• Discretionary forbearance: Capped at 9 months per 24-month period 

• Loan rehabilitation: Now allowed twice (previously only once) 

Other Changes to Federal Student Aid

Pell Grants: 

• Expanded eligibility to include short-term job training programs 

• Part-time students remain eligible 

• Indexed to inflation to keep pace with rising education costs 

FAFSA Simplification: 

• Excludes small business, farm, and commercial fishing assets from aid calculations 

• Increased asset protection allowance: The bill increases the asset protection allowance, which is the amount of assets that can be excluded from the financial aid calculation. This change aims to make it easier for families to save for college without negatively impacting their financial aid eligibility  

• Simplified needs test: Excludes retirement accounts and certain family-owned assets 

• Revised family contribution formula: The formula for calculating the Student Aid Index (SAI) has been revised to better reflect a family's ability to pay for college. This includes adjustments for inflation and cost of living  

What’s Next?