The changes included in the OBBB will drastically reduce the federal government’s involvement in funding higher education.  For current student borrowers, the sunsetting of ICR plans will be highly troubling. 

Since 2011, students have enrolled in school and funded their education with federal student loans with the promise that under the Pay As You Earn plan, they would pay no more than 10% of their income for 20 years. 

The OBBB effectively pulls the rug out from under these borrowers, forcing them into options that will increase their payments and tack on 5-10 additional years before they complete their repayment obligation. 

• Borrowers currently in PAYE who are new borrowers as of July 1, 2014, will be exempt from this change, as they will be able to maintain similar repayment terms under IBR as they had in PAYE.

• Borrowers in the SAVE forbearance or ICR plans will need to evaluate the benefits of the IBR plan versus the new RAP plan by July 2028; otherwise, they will be automatically transferred to the RAP plan.

• Additionally, current Parent borrowers who want to benefit from PSLF or an IDR plan will need to quickly consolidate their loans and enter an ICR plan before July 2026, and then wait for the transition into IBR by July 2028.  

For current students, they will need to weigh the costs of taking out federal loans after July 1, 2026, and the impact that might have on their ability to repay their current loans under the IBR plan vs the RAP plan. 

While the new loan limits don’t affect those who have already begun a course of study, taking additional federal loans out after July 1, 2026, would limit their repayment options to just RAP and the new standard repayment plan, which are far less favorable than the new IBR plan.

New students face a new world of financial aid.  One in which the federal government will play a significantly smaller role.  While undergraduate loan limits remain the same, they were already well below the requirements needed to fund a bachelor’s degree. 

How the future looks for future graduate & professional students

Future graduate and professional students will be facing a very different reality when it comes to paying for their advanced degrees than past generations. 

• The annual loan limits under the OBBB will mean most graduate and professional studies will not be affordable on federal loans alone.  More graduate students will need private student loans to subsidize their educational costs.  The longer repayment term of RAP, higher required payments, the lack of a payment cap, and limited access to federal funds will make the RAP plan less attractive to higher-earning individuals. 

For example, a 4-year Doctor of Dental Surgery program at a private college can currently cost as much as $120,000 per year, including living expenses. 

Under the current loan limits, less than half of the costs would be eligible for borrowing from the federal government and for the new RAP plan.  With half the cost of education coming from private loans that currently have rates as high as 15% and many that require co-signers, the cost of obtaining a graduate or professional degree will significantly impair the borrower’s financial situation for decades into their career.

With a 30-year repayment term, it’s doubtful that the RAP plan provides much, if any, benefit to the professional students when in repayment.  The net result is likely that future students will finance more, or all, of their education from private lenders.   It’s also quite possible there would be fewer students willing to finance their education at the higher interest rates associated with private loans, leading to reduced enrollment, closure of schools, and eventually a shortage of professionals to serve the community.