Reimagining and Improving Student Education
Published Date: 1/30/2026
Proposed Rule
Summary
The Department of Education is shaking up student loans to make things simpler and fairer for grad students, parents, and pros starting soon. They’re setting new loan limits, ending some old repayment plans, and introducing fresh, easier ways to pay back loans. If you’ve struggled before, you might get a second chance to fix your loan and start fresh—all changes kick in after March 2026 with new rules and options.
Analyzed Economic Effects
6 provisions identified: 4 benefits, 2 costs, 0 mixed.
New graduate, parent, lifetime caps
The rule sets new annual and aggregate loan limits: graduate students remain capped at $20,500 annually with a $100,000 aggregate cap, professional degree students may get up to $50,000 annually with a $200,000 aggregate cap, and Parent PLUS loans are capped at $20,000 per student per year with a $65,000 aggregate per student. The OBBB also establishes a new lifetime borrowing cap of approximately $257,500 for most borrowers and phases out unlimited Graduate PLUS borrowing.
Two repayment options; ICR sunset
The Department will replace the current patchwork of repayment plans with two options: a Tiered Standard plan with fixed monthly payments over a 10-to-25 year term, and a new income-driven Repayment Assistance Plan that prevents negative amortization. The Repayment Assistance Plan includes monthly interest cancellation and principal payment subsidies and the rule sunsets existing ICR, PAYE, and SAVE plans for future borrowers.
Taxpayer exposure to loan forgiveness reduced
The Department says the new annual, aggregate, and lifetime caps will reduce taxpayer exposure to high-cost loan terms and loan forgiveness. The notice notes that the Department estimated it forgave $199 billion in student debt from 2021 to 2025 and indicates the caps would produce significant savings to taxpayers.
Rehabilitation allowed twice (after 2027)
Starting on or after July 1, 2027, borrowers may rehabilitate a defaulted Federal Perkins, FFEL, or Direct loan up to two times over the loan's lifetime. The proposed regulations amend Sec. 674.39 and Sec. 682.405 to allow a second rehabilitation beginning July 1, 2027.
Part-time students get reduced loan amounts
The OBBB requires institutions to reduce annual loan limits in direct proportion to a student's percentage of full-time enrollment, and the Department will publish a schedule of reductions in the final rule. This means students enrolled less than full-time will be eligible for smaller annual Direct Loan amounts and may receive smaller credit balances.
FFEL IBR eligibility and formula change
For FFEL borrowers the rule removes the partial financial hardship requirement and defines an "applicable amount" equal to 15% of the borrower's (and spouse's, if applicable) income above 150% of the poverty guideline when calculating IBR payments. The Department proposes conforming changes to Sec. 682.215 to replace partial financial hardship references with this applicable amount.
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