Signed into law by President Donald Trump on July 4, the recently passed budget reconciliation bill makes multiple changes to Federal financial aid policy. These changes will go into effect for the 2026-27 academic year.

The upcoming academic year will not be impacted.

“These changes represent a significant shift in federal student aid,” said Anthony Jones, the U’s executive director of scholarships and financial aid. “Some of the updates will expand eligibility and some will limit it. Specific guidance for the new borrowing rules is evolving. While we don’t know everything that will happen, we do know the legislation includes legacy provisions for students who have loans that were disbursed before July 1, 2026.”

The University Office of Scholarships and Financial Aid will continue to provide guidance and updates to campus as more details are clarified. Individuals with questions and concerns can reach out directly to the office.

Here’s what you need to know:

Federal Application for Student Aid (FAFSA)

The small business and family farm exemption is reinstated. This long-standing policy allowed families not to report small business or family farm assets when filling out the FAFSA. In a largely unpopular decision, it was removed in the FAFSA Simplification Act of 2022. With its reinstatement, exemptions for fishing businesses were also introduced.

Pell Grants

Eligibility is expanded to shorter-term workforce-aligned programs. Specifically, programs that are delivered over 150-600 hours, or the credit equivalent of an eight to 15-week course. The process for identifying and approving those programs is yet to be determined. However, analysis by the Utah System of Higher Education suggests around 30 programs in the state will be eligible. Currently, none of these are offered at the U.

Students receiving scholarships covering their full cost of attendance will no longer receive Pell Grants, even if they are income-eligible for the program.

$10.5 billion in mandatory spending has been allocated to avoid the anticipated Pell Grant shortfall.

Parent PLUS Loans

Parents are limited to borrowing $20,000 per dependent student, per academic year, with a lifetime cap of $65,000 per dependent.

Graduate and professional degree programs

Graduate PLUS Loans are eliminated.

New caps are imposed on how much individuals can borrow under the Unsubsidized Federal Direct Student Loan program for graduate and professional degree programs.

Professional degrees (such as a J.D. or an M.D.): Students can borrow up to $50,000 a year in federal student loans with an aggregate limit of $200,000 for the duration of that student’s degree program.

Graduate degrees (such as master’s or doctorate): Students can borrow up to $20,500 a year with an aggregate limit of $100,000 for the duration of their degree program.

Students who need additional funds can supplement federal aid with private lending.

New aggregate borrowing limits

All borrowers will be limited to a lifetime cap of $257,500 across all federal student loan programs.

Federal student loan repayment plans updates

Starting July 1, 2026, there will be two main repayment options for new federal student loan borrowers.

Standard repayment plan: Based on the amount borrowed, fixed monthly payments will be set for a term of 10 to 25 years. Compared to the previous standard plan, the new plan may lead to lower monthly payments for individuals with loans of more than $25,000.

Repayment Assistance Plan (RAP): Under this income-driven repayment plan, monthly payments will be 1% to 10% of a borrower’s adjusted gross income (AGI). For each dependent the individual has claimed on taxes, $50 will be subtracted from the payment.

If a borrower earns $10,000 or less annually, their minimum monthly payment will be $10. Any outstanding loan balance will be canceled after 30 years of repayment.

This plan differs from previous income-driven repayment plans because it has a longer timeline and payments are calculated on AGI, not discretionary income.

Existing repayment plans will also change.

Existing income-driven repayment plans: All existing income-driven repayment plans will be phased out, including SAVE, IBR, ICR and PAYE. Borrowers will need to transition to one of the new repayment plans by July 1, 2028.

Income-driven Repayment for Parent PLUS loans: Most of these borrowers will no longer be able to utilize income-driven repayment plans.

Unemployment or economic hardship deferral: No longer available.

While Public Service Loan Forgiveness is still available, these other changes may impact an individual’s plan for receiving loan forgiveness.

Institutional Accountability

Original proposals for the 2025 Budget Reallocation Acts considered financial penalties for higher education institutions whose students and graduates default on their loans. Ultimately, the legislation adopted a “do-no-harm” standard.

Under this framework, graduate earnings will be assessed against the earnings of young adults without college degrees in their state. Individuals with bachelor’s degrees will be compared to the median income of individuals with high school diplomas. Individuals with master’s degrees will be compared to the median income of individuals with bachelor’s degrees.

For a program to pass this assessment, its graduates must be earning more than the median income of those in the comparison group. If this standard is not met for a year, programs must provide disclosures to prospective students. If a program falls short for two out of three consecutive years, the program will lose the ability to offer federal student loan funding to students enrolled in that program. After a two-year waiting period, a program may apply for eligibility.