The One Big Beautiful Bill Act (OBBBA) has introduced sweeping changes to federal financial aid, student loans, and college savings plans. Financial aid expert Mark Kantrowitz discusses how OBBBA affects students and families planning for college.
The landscape of college funding has shifted with the passage of OBBBA. As families prepare for future education costs, understanding these changes becomes crucial.
In this episode, Mark joins podcast host John P. Bryson to unpack the details of this comprehensive legislation. He delves into how OBBBA affects federal student loan programs, Pell Grants, and college savings plans. Here’s a brief Q&A with key takeaways from their conversation:
1 What major changes did OBBBA make to federal student loan programs?
Mark: OBBBA repealed the Grad PLUS loan program, retained the Parent PLUS loan program with new annual and aggregate loan limits, and also introduced new loan limits for graduate and professional school students. It also streamlined repayment plans to just two options—a standard repayment plan and an income-based repayment assistance plan.
2 How does OBBBA affect federal grants like the Pell Grant?
Mark: Students with low income but high assets or those with nonfederal grants exceeding the total cost of attendance are now ineligible for the Pell Grant. OBBBA also introduced workforce Pell Grants for short-term programs and added the option to add foreign earned income to adjusted gross income for determining eligibility.
3 What changes does OBBBA bring to education savings accounts?
Mark: For K-12 education, OBBBA expanded qualified expenses for 529 education savings accounts and increased the annual limit of qualified expenses that families can draw from $10,000 to $20,000, starting in the 2026 tax year. It allowed rollovers from 529 education savings plans to ABLE accounts for the disabled and increased the lifetime estate and gift tax exclusion permanently. It also introduced Trump Accounts with a $1,000 federal contribution for children born between 2025 and 2028 and allowed annual employer and parental contributions.
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John
Hello and welcome to the Portfolio Intelligence podcast. I'm your host, John Bryson, head of investment consulting and education savings at Manulife John Hancock Investments. Today is September 12th, 2025, and as always, the goal of this podcast is to help investment professionals deliver better outcomes for their clients and their practice. Now September is back to school month for many people, and because of that, we always try to record a podcast related to planning or saving for education.
Today's episode dives into one of the most significant shifts in higher education policy that we've seen in recent years. It's all around the One Big Beautiful Bill Act or OBBBA. Signed into law this summer, OBBBA is reshaping federal financial aid, student loans, and college accountability in ways that will affect millions of students and families. To help us unpack what this all means, we're joined by one of the nation's foremost experts on financial aid for students, Mark Kantrowitz.
Mark is a nationally recognized authority on scholarships, student loans, college savings plans, and education tax benefits. He's testified before Congress, written for major publications like The New York Times, Wall Street Journal, and Forbes, and authored five bestselling books on paying for college. Mark, welcome to the Portfolio Intelligence podcast.
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Mark
Thank you for having me.
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John
You got it. Hey, listen, can you give our audience a quick overview of what the One Big Beautiful Bill Act is and why it matters to families planning for college?
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Mark
The One Big Beautiful Bill Act is a massive piece of legislation, approximately 870 pages long. It extended the Tax Cuts and Jobs Act of 2017, many provisions of which were set to expire at the end of 2025. And it also added a bunch of new tax cuts. And in the process, it cut federal student aid programs by more than $300 billion, perhaps partly to offset the increased costs of the legislation.
So, it made significant changes to federal student loan programs and loan limits, student loan deferments and forbearances, student loan forgiveness and discharge, federal education grant programs like the Pell Grant, federal education tax credits, college endowment, excise taxes, college savings plans, and the FAFSA.
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John
Wow. So a lot of different changes across the board when it comes to college and paying for college. Let's start with and hit, the student loan programs—what was taken away and what was added?
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Mark
Right. So, OBBBA made several changes to federal student loan programs, some pretty dramatic changes. It repealed the Grad PLUS loan program, but it retained the Parent PLUS loan program. However, previously, the Parent PLUS loan was effectively unlimited with annual limits equal to the cost of attendance at the college, minus other rates, and no aggregate limit. While the OBBBA legislation added annual and aggregate loan limits for the Parent PLUS loans, it also set new loan limits for graduate and professional school students, partly compensating for the elimination of the Grad PLUS loan.
The new loan limits are lower than what some students were borrowing from the Grad PLUS loan program previously, before it was eliminated.
Now, it also made changes to student loan repayment plans. Instead of a dozen student loan repayment plans, there will now be just two—a standard repayment plan and an income-based repayment assistance plan, or RAP.
The standard repayment plan is more similar to previous extended repayment plans, where the repayment term is based on the amount of debt. The RAP plan has loan payments based on a percentage of adjusted gross income that ranges from 1% to 10%, it increases as AGI (Adjusted Gross Income) increases.
Now, comparing RAP to the previous Income-Driven Repayment plans, which are being phased out—it's more expensive than the SAVE plan. Loan payments under RAP are less than under IBR, i.e. income-based repayment, for low and moderate income—powers up to about $75,000 in income. But the repayment term is 30 years instead of the 20 or 25 years under IBR. So, that yields higher total payments
OBBBA also repeals the economic hardship and unemployment deferments, and switches the general forbearances from a maximum three years in one year increments, to nine months out of every 24 month period with no aggregate limit to the number of forbearances you can have. But they're, strictly speaking, going to be short term suspensions of the obligation to repay the debt.
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John
Okay. So that, is some detail on the impact on the student loan programs. What about how this impacts grants?
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Mark
So OBBBA made a few changes to the Pell Grant program. First of all, the Pell Grant program had a funding shortfall of about $10.5 billion. OBBBA eliminated that funding shortfall by appropriating sufficient funds. Now…it blocks Pell Grants for applicants whose student aid index is double or more the maximum Pell Grant. These are the so-called Pell billionaires who have low income but high assets. Foreign earned income is going to be added to adjusted gross income when determining eligibility for the Pell Grant.
Previously, someone whose income was mostly from a foreign country could nevertheless qualify for a Pell Grant because that was excluded from adjusted gross income. Now it's going to be added back in.
Also, students whose non-federal grants, such as scholarships and state grants, exceed the total cost of attendance will lose eligibility for the Pell Grant. And finally, it creates the workforce Pell Grants to pay for short term programs, typically eight to 15 weeks.
Oh, and it also creates a new tax credit for contributions to elementary and secondary school voucher programs.
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John
Okay, so big impact on student loans. Big impact on grants. The other thing a lot of people want to understand is how does this impact college savings program.
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Mark
So, it makes several significant changes to 529 college savings plan, and it also creates a new savings plan. The qualified expenses in a 529 plan previously included tuition and fees for a K-12 education. Now it will also include books, standardized tests like the SAT, ACT and AP tests, tutoring, dual enrollment fees, and educational therapies for disabled students.
It also doubles the limit from $10,000 a year to $20,000 a year. Now, the changes in qualified expenses were immediate upon passage, but the increase from $10,000 to $20,000 starts in the 2026 tax year.
It also makes workforce education programs and postsecondary credentialing expenses eligible as qualified expenses. It allows rollovers from 529 plans to ABLE accounts for the disabled. Previously, those were set to expire and now it's made permanent and there are increased slightly…the limit. The lifetime estate and gift tax exclusion has been permanently increased. It was set to expire and revert back to about $7 million a year. Now it's been permanently extended, and it's been increased to $15 million and then subsequently indexed for inflation. It creates new Trump Accounts which have, a variety of benefits. I mean, children born from 2025 to 2028 will get a $1,000 birthday gift…from the…paid for by the federal government to seed the money in the account. Employers can contribute up to $2,500 a year, and parents can contribute maximum of $5,000.
I recommend that you maximize the free money. So, take that thousand-dollar birthday gift. Take the money from the employer…those…and it's hard to turn away free money…the others…and the accounts are similar to IRAs.
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John
So, there's a lot of changes there that impact college savings across a number of dynamics, whether it be for younger families or high net worth individuals. Do you see 529 plans or other saving vehicles becoming more important under this new landscape?
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Mark
Well, if we look at where the money is coming from to pay for college, it comes from savings, income, loans and financial aid. Every dollar you save is a dollar less you'll have to borrow. College savings also expands your college choice, so that you aren't as limited in what kind of colleges you can choose.
Now, with the cutbacks on federal student loans in the legislation it becomes more important for families to save, especially if they want to enroll at a higher cost college or in graduate and professional school. Otherwise, they will have to shift their enrollment to lower cost colleges such as an in-state public college.
Now, some of the low-income families may not be able to afford a college education because they may be forced to shift their borrowing to private student loans which are credit underwritten and then low-income students tend to be less likely to qualify for those loans. So, if they can't afford to pay the bill, they may not be able to enroll in college.
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John
Okay, so if you had one piece of advice for families that are trying to navigate the college planning process in this post-OBBBA world, what would it be?
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Mark
Well, one would be to save early and often. Shop around when choosing a college. Consider the net price of each college that you've been admitted to. And also, and it's cheaper to save than to borrow. So, save as much as possible before college to reduce the amount you'll need to borrow during college.
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John
Makes sense. Get ahead of it. Try to avoid those long-term loans if you can save in advance for college and shop for the right college. We've heard those messages from a number of different speakers who we've had on in the past. Hey Mark, I want to thank you for joining the podcast. It's really helpful and insightful. We appreciate your time.
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Mark
Thank you.
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John
All right, folks, if you want to hear more, this is certainly a complicated topic. We have an upcoming webinar for financial advisors on October 28th. So, reach out to your local business consultant or keep an eye on your email to get more information on that. As always, if you want to subscribe to the Portfolio Intelligence podcast, you can find us on iTunes or our website. You can learn about a number of things in addition to college savings. You can get great business building ideas, all types of viewpoints around investing and investing for the long term. Folks, as always, we want to thank you for listening to today's show. Take care.
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John
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