Higher Education and the Bill
Congress' just-passed "Big Beautiful Bill" brings with it significant changes to higher education, both directly and indirectly. Here's what families need to know.
First, the changes begin with the 2026-27 school year; students who are enrolled as of this year will be able to continue accessing federal aid programs as they are currently available. The direct changes come in several areas:
Student Loans
The bill places limits on several types of loans. Parent PLUS loans will be capped at $65,000 per student, while graduate students will be limited to $100,000 or $200,000 for professional programs such as medical or law school. In addition, the bill limits repayment plans to the least generous options, meaning borrowers in income-driven repayment plans will have higher monthly payments. Zero dollar payments in IDR plans will be eliminated; borrowers will be required to pay at least $10 per month. In addition, bill extends the timeline for loan forgiveness from 20 or 25 years to 30 years.
Pell Grants
Pell Grants will be expanded to include shorter-term career-focused programs. While this might seem like a beneficial expansion, these programs are primarily offered by for-profit colleges that have lower graduation rates and lifetime earnings than four-year colleges and have fewer guardrails to ensure that students are well-served by the programs. Students who receive full scholarships from their college will no longer be eligible to receive Pell Grants.
Endowment Tax
A new, tiered endowment tax takes effect for colleges that enroll more than 3,000 students. The top rate of 8% kicks in for endowments in excess of $2,000,000 per student. (For example, a college enrolling 5,000 students would pay the top tax rate on endowment funds in excess of $10 billion.
Accountability
New accountability measures will require that colleges show that their graduates earn more than adults with only a high school diploma in order to be eligible to receive federal student loans. Interestingly, this only applies to colleges, not to certificate programs which are the most common culprits in defrauding students by charging high prices for worthless certificates. Very few four-year colleges are at risk with the earnings test; however, many community colleges are so ultimately this could make it more difficult for students attending community college to secure student loans.
There's another area where the bill will have a big impact on colleges, although more indirectly: cuts to Medicaid. Medicaid cuts impact colleges in numerous ways:
Cuts to Medicaid funds result in states spending more of their own money to insure and cover healthcare costs for low-income residents. Because states are required to balance their budgets, increases in spending in one area need to be offset by decreases in other areas. State funding for higher education is, more often than not, the target of such cuts.
Most universities operate hospitals. Hospitals receive funds to care for Medicaid patients in two ways: via reimbursements (insurers paying providers for services provided) and via State Directed Payments, which require managed care organizations to make payments to health care providers to increase access to or quality of care. In addition to cutting Medicaid, the bill restricts SDPs, both of which will reduce funding for hospitals. The Kaiser Family Foundation estimates that payments to hospitals will decrease in at least 29 states. Hospitals in rural areas are likely to be hardest-hit over time; many of these rural areas are served by land-grant college hospitals.
Many students rely on Medicaid and SNAP for healthcare and food. Approximately 3.5 million college students are covered by Medicaid, and almost 20% are eligible for SNAP. Reducing these funds means that either students or colleges need to fill that financial gap.
The bill does expand uses of 529s, specifically:
Increasing K-12 tuition reimbursement from $10,000 annually to $20,000.
Expanding K-12 qualified expenses to include books, tutoring, online curricula and curricular materials, standardized test fees, dual enrollment fees, and some educational therapies for students with disabilities.
Adding credentialing expenses, including testing and continuing education required to receive or maintain certification, to the list of qualified higher education expenses.
What does this mean for your family? Much depends on where you are in your educational journey. Unfortunately, while much is being done in the bill to restrict funding for college, very little is being done to rein in the cost of education. That means that reducing access to federal loans is likely to mean students and families will borrow more from private lenders, and that families who rely on Parent PLUS loans-- primarily first-generation and minority students-- may be priced out of college altogether.
