How OBBBA Reshapes Student Lending
This report was published through the Brookings Institution.
This document provides a detailed overview of how the One Big Beautiful Bill Act (OBBBA)—passed into law in the summer of 2025 and set to take effect in just a few short months—changed higher education financing. It describes the state of student lending at the time of its passage, analyzes how the law changes borrowing, repayment, and institutional accountability, and explores some key implications for students, families, and the federal budget.
In 2025, about 43 million Americans owed more than $1.6 trillion in federal student debt. Following the end of the pandemic-era payment freeze in October 2023, and further temporary protections over the year that followed, delinquencies and defaults surged. By then, borrowers were enrolled in a variety of repayment plans, including several million borrowers left frozen in administrative forbearance.
OBBBA enacted several major reforms:
Borrowing caps: The act imposes limits on parent loans and most graduate loans, with higher limits for professional degree programs. These limits will affect roughly 25–40% of graduate borrowers, reducing federal loan volume by $8–10 billion annually once fully phased in, and reducing total government outlays by $44 billion over 10 years. The impact falls most heavily on longer or higher-cost master’s and professional programs, particularly in health-related fields.
Repayment reform: Beginning in 2026, all new borrowers will choose between a single fixed “tiered standard” plan and a new Repayment Assistance Plan (RAP). RAP replaces multiple income-driven repayment (IDR) options with one structure that ties payments to total adjusted gross income rather than discretionary income. In terms of payment amounts, RAP shares some similarities with the Obama-era Revised Pay As You Earn (REPAYE) plan, but requires all borrowers to make some payment even at the lowest income levels and extends repayment to 30 years, which increases total payments and lowers long-term government subsidy costs. The Congressional Budget Office (CBO) estimates RAP will save $271 billion over 10 years. Borrowers on older income-driven repayment plans (including REPAYE) must transition to certain legacy income-based repayment or other existing plans or to RAP by 2028.
Institutional accountability: A new “do no harm” standard links federal loan eligibility to graduates’ median earnings after completion. Programs whose graduates earn less than the typical high school graduate (or bachelor’s degree-holder, for graduate programs) risk losing access to student loans. Only about 1.8% of students—mainly in certificate or for-profit programs—are expected to be affected, while most public and nonprofit institutions easily meet the standard.
Economic effects: OBBBA’s reforms may moderate student debt growth and shift repayment risk toward borrowers but are unlikely to impose major short-term macroeconomic shocks; the major economic adjustment already occurred with the 2023–2025 repayment restart, which reduced consumer spending and credit scores as millions resumed payments. In contrast, OBBBA’s borrowing caps and new repayment rules will affect future borrowing and repayment more gradually over many years.
What to look for next: Implementation will help determine OBBBA’s effects. Regulations will determine how certain legislative changes are applied. Servicers must retool operational systems to implement RAP by July 2026, with open questions about how quickly existing borrowers can migrate. The effects of federal loan caps will depend on how institutions respond to borrowing limits and whether private lenders will fill the gap, or whether some students will be priced out of advanced degrees. And future administrations could delay or reinterpret major provisions, such as borrower defense rules or accountability enforcement.
