Big changes hit federal student loan program

Recent changes to the federal student aid program have drastically shifted the way many Americans will pay for college in the future, both for themselves and their children.

But many people are unaware of just how significant the changes to the federal student loan program are after the passage of H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, said Patti Hughes, CPA, CFP, principal of Lake Life Wealth Advisory Group in Illinois. The legislation was signed into law by President Donald Trump this past summer.

“So much has changed,” said Hughes, who is also a certified student loan professional. “If you’re a CPA or a financial planner, you really need to understand this.”

Twenty-two percent of Americans have either personal student loans or parent loans for their children, according to an August survey conducted on behalf of the AICPA. And of people with personal student loans, three-quarters (74%) are worried about repaying them.

Those repayment worries emphasize the need for CPAs and CPA financial planners to discuss student loans in meetings with clients to help people understand the recent changes to the federal student loan program and what this means for their student loans or their plans to save for children or grandchildren.

In the discussion below, Hughes and Robert Westley, CPA/PFS, regional wealth adviser and senior vice president at Northern Trust in the New York City area, share their thoughts on what’s changed — and what’s stayed the same — when it comes to paying for college.

Interest has started back up

Payments were delayed and interest frozen on federal student loans during the pandemic, through late 2023. Many people subsequently had their payments and interest paused in their Saving on a Valuable Education (SAVE) plans, the Biden Administration’s attempt to lessen people’s student loan debt loads. The pause has ended for these federal student loans, with SAVE plans accruing interest as of Aug. 1, 2025, and the SAVE plans themselves are on track to phase out (see more on that below).

“Anyone trying to repay their loan, you should have started making payments on them again,” Hughes said. “If you haven’t, then interest is going to keep accruing.”

Her advice differs for those who fall under remaining federal loan forgiveness programs because of lower expected incomes or those working in public service jobs, such as in government or the not-for-profit sector, who qualify for loan forgiveness. That group of people would benefit from paying the least amount possible, given that all the loans and interest will eventually be forgiven.

The Public Service Loan Forgiveness (PSLF) program, which offers a pathway for borrowers to obtain forgiveness of outstanding federal loan debt if they work for 10 years for government or not-for-profit organizations, remains intact. That said, the Trump administration recently issued final regulations that in 2026 will narrow the types of organizations a person who is seeking loan forgiveness under the PSLF program can work for, by requiring the secretary of Education to exclude those organizations that have a “substantial illegal purpose,” including supporting terrorism or aiding and abetting illegal immigration, among other things. That rule is being challenged in the courts.

The federal government also can now take collection actions against those who default on their loans, including by garnishing wages.

“If you’ve defaulted, they’re going to come and get the money,” Hughes said.

Shift to new repayment plans

In addition, existing federal income-driven repayment plans such as SAVE, Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) will be phased out starting in 2026.

New borrowers will have two choices after July 1, 2026 — a new standard plan that has fixed payments for a set period, as well as the new Repayment Assistance Plan (RAP). Existing borrowers can stay on their current plans until July 2028, but those enrolled in ICR, PAYE, or SAVE plans must switch to a new plan by then or they will default to the RAP, Hughes said.

Streamlining the available repayment options should make it easier for borrowers to understand their options, Westley said.

“There was a lot of confusion, and the One Big Beautiful Bill brought some more stability to the student loan landscape,” he said.

Caps on federal loans

One of the biggest changes to come from H.R. 1 are caps on the amount students and parents can borrow under the federal student loan program.

“The thought there was to help make sure that students or parents aren’t too saddled with debt that they couldn’t get out from under or that could derail a parent’s retirement,” Westley said.

Beginning on July 1, 2026, new caps will be phased in, limiting how much people can take out in federal student loans, with a lifetime borrowing limit of $257,500. Graduate students will be able to borrow a maximum of $20,500 a year, with a total amount of $100,000. Loans for professional school students will be capped at $50,000 a year, or $200,000 total (see the helpful PDF chart prepared by the National Association of Student Financial Aid Administrators).

Parents are also subject to borrowing caps. They will now be limited to taking out $20,000 in federal loans per student each year, with a lifetime total of $65,000 per student.

These caps are significant, especially for people who attend graduate or professional schools, such as medical or law school, Hughes said. She anticipates people will turn to the private market to help fill gaps in their funding options, or higher education institutions may extend bigger financial aid packages to incoming students.

529 plans remain

The recent legislation supported 529 college savings plans, and these remain an excellent choice for people to set aside money for their children’s and grandchildren’s college educations, Westley said. In fact, H.R. 1 broadened the definition of qualified expenses to cover vocational programs and apprenticeships, among other things.

The plans allow for tax-free growth, and many states also have additional tax advantages for those who contribute.

“Saving when that child is young really allows for that money to compound and grow over time,” Westley said. “529 plans, in my opinion, really remain the most optimal choice.”

Seek advice

While this article summarizes some of the key changes to student financial aid made by H.R. 1, other changes were included in the legislation as well (see the previously mentioned PDF chart).

Federal student loans are a complicated area, with challenges frequently brought in the courts and changes made in how the loans are administered. A misunderstanding of the rules could cost a person a significant amount in terms of what is ultimately owed, Hughes said.

That’s why she recommends CPA practices have vetted advisers to refer clients to when the need arises. These advisers would preferably be certified student loan professionals who keep abreast of changes to the various student loan programs.

For more on this topic, listen to the AICPA Personal Financial Planning Section podcast episode “Education Funding.” Section members can download the client brochure “2025 Tax and Financial Planning Tips: Education Costs.”

— Sarah Ovaska is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.