AGB Policy Alert: Budget Reconciliation Bill Passes—Major Higher Education Changes Ahead

After months of negotiation, Congress has passed a sweeping budget reconciliation bill that includes significant higher education provisions. The legislation, which cleared the Senate on Tuesday and passed the House today, now heads to President Trump, who is expected to sign it into law. This legislation carries broad implications for higher education and will impact federal student aid, program eligibility, regulatory oversight, and institutional operations.

The full text of the bill can be found here.

What Is in the Final Budget Reconciliation Package

Federal Student Loans

• The bill eliminates Graduate PLUS loans starting with the 2026–27 academic year.
• New borrowing caps for graduate students are:
  • $20,500 annually and $100,000 total for nonprofessional graduate students.
  • $50,000 annually and $200,000 total for professional students.
• The bill caps Parent PLUS loans at $20,000 annually and $65,000 total per dependent student.
• The bill sets lifetime aggregate borrowing limit across undergraduate and graduate programs at $257,000.
• The bill prorates loan amounts based on student enrollment intensity.
• Institutions may limit undergraduate loan eligibility below statutory caps if applied consistently.
• Existing borrowers enrolled in a program by June 30, 2026, are exempt from new borrowing caps for three years.

Student Loan Repayment

• For loans issued after July 1, 2026:
  • Two repayment options: a Standard Repayment Plan and an income-based Repayment Assistance Plan (RAP).
  • RAP includes a $10 minimum monthly payment, principal reduction of up to $50, and loan forgiveness after 30 years.
• Existing borrowers in Income-Contingent Repayment (ICR) Plans who fail to select a new repayment plan by July 1, 2028, must select RAP or Income-Based Repayment (IBR) by such date or the Department of Education will select one for them.
• The bill allows loan rehabilitation twice, with a $10 monthly minimum payment.
• Borrowers in RAP remain eligible for Public Service Loan Forgiveness.
• The bill limits forbearance on new loans to 9 months in any 24-month period starting July 1, 2027.

Program Eligibility Based on Earnings

• Undergraduate programs lose federal loan eligibility if graduates, for two out of three years, earn less than the median high school graduate in their state.
• Graduate programs are disqualified if graduates, for two out of three years, earn less than the median bachelor’s degree holder in the same field and state.
• Institutions must notify students if a program is at risk of losing eligibility.
• The bill provides an appeals process and pathway to regain eligibility after two years.

Pell Grants and Workforce Pell Grants

• The bill revises Pell eligibility to:
  • Include foreign income in financial aid calculations.
  • Exclude students with grants from other federal and non-federal sources that equal or exceed the full cost of attendance.
• The bill establishes criteria for Workforce Pell Grants:
  • Programs must be 150 to 600 clock hours and 8 to 15 weeks in duration.
  • Programs must align with high-demand, high-wage sectors.
  • Programs are subject to state and federal quality and outcomes standards.
• The bill provides $10.5 billion in new mandatory Pell Grant funding.

Other Key Provisions

• Excludes family farms and small businesses with fewer than 100 employees from federal aid asset calculations.
• Delays recently promulgated Borrower Defense to Repayment and Closed School Discharge regulations for 10 years.
• Allocates $1 billion for Federal Student Aid administrative operations.

Key Implications for Governing Boards

Institutional leaders and governing boards should take steps now to assess the operational, financial, and reputational impacts of these sweeping federal policy changes:

• Strategic Financial Oversight—Reduced graduate and professional loan availability may affect enrollment and revenue. Boards should review financial models and enrollment strategies.
• Academic Program Viability—New earnings-based eligibility standards put certain programs at risk. Boards should engage in data-driven program reviews and risk assessments.
• Compliance and Reputational Risk—With reduced federal oversight in some areas, strong institutional governance and internal safeguards are essential to mitigate reputational risk.
• Access and Student Equity—Loan caps and Pell eligibility changes may disproportionately affect underserved student populations. Boards should monitor demographic impacts and work to uphold commitments to access and equity.
• Advocacy and Public Engagement—Board-level advocacy remains essential. Trustees bring credibility to policy discussions and should be prepared to share institutional stories and data with policymakers and their communities.

Strategic Recommendations for Governing Boards

1. Convene immediate briefings with the president, financial officers, and enrollment leaders to assess institutional impacts of the legislation.
2. Review academic program data to identify vulnerabilities under new earnings standards.
3. Engage campus stakeholders to communicate changes and support affected students.
4. Meet with congressional delegations to provide institutional perspectives and data.
5. Coordinate with state associations and higher education coalitions on implementation strategies and best practices.

Pivotal Moment for Higher Education

This is a pivotal moment for higher education governance. The changes in the reconciliation bill will reshape the federal student aid landscape, institutional accountability, and student access for years to come. Active board oversight and leadership are critical to effectively navigate these challenges and protect institutional mission, access, and financial sustainability.