Higher Education Reform: Loan Limits, Accreditation, and Pell

Higher education reform in the United States is moving on several tracks at once. A sweeping 2025 law rewrote federal student loans, repayment plans, and Pell Grants; the Trump administration is transferring the Department of Education’s functions to other agencies and rewriting the rules for accreditation; and states are passing their own laws on governance, diversity programs, and campus speech. If you borrow for school, apply for aid, or attend a public college, most of the changes below will affect you between now and July 2027.

What the One Big Beautiful Bill Act Changed

Signed on July 4, 2025, the One Big Beautiful Bill Act is the largest piece of higher education legislation since the Higher Education Act was last reauthorized in 2008. Its higher education provisions mostly take effect on July 1, 2026.¹

New Borrowing Limits

The law eliminates the Grad PLUS program, which had let graduate and professional students borrow up to the full cost of attendance. New annual and lifetime caps replace it:

Graduate students: $20,500 per year, $100,000 total.
Professional students (law, medicine, and similar): $50,000 per year, $200,000 total.
Parent PLUS: $20,000 per year, $65,000 per student over their education.
An overall lifetime cap of $257,500 across all federal loan types, excluding Parent PLUS.²

If you have loans outstanding as of June 30, 2026, you are exempt from the new caps for three years.¹

Two Repayment Options Going Forward

The law phases out the SAVE, Income-Contingent Repayment, and Pay As You Earn plans by July 1, 2028. SAVE enrollees had already been placed in forbearance following court orders.³

Anyone with loans first disbursed on or after July 1, 2026, will choose between two plans. A tiered standard plan runs 10 to 25 years depending on balance. The Repayment Assistance Plan (RAP) sets payments at one to ten percent of adjusted gross income, with a $10 monthly minimum and a $50 monthly credit per child. Any balance remaining after 30 years is discharged. RAP also waives unpaid accrued interest for the full repayment term and adds a matching payment when a borrower’s regular payment reduces principal by less than $50 in a month.³ The Department of Education published the final RAP rule on May 1, 2026, with an effective date of July 1, 2026.⁴

One tax change to plan around: beginning January 1, 2026, discharged student loan debt is treated as taxable income. The pandemic-era exemption is over.³

Workforce Pell for Short Programs

Pell Grants now reach short-term job training programs lasting as few as eight weeks (150 to 599 clock hours). Apprenticeships, career and technical education, and certificate programs can qualify if they prepare students for high-skill, high-wage, in-demand jobs, and if they meet thresholds for completion, employment, and return on investment. Governors, working with state workforce boards, identify the eligible industries. Unlike traditional Pell, students who already hold a bachelor’s degree can use Workforce Pell for these short-term programs.¹ Colleges must limit tuition based on graduates’ earnings. The program begins July 1, 2026, following a final rule issued May 18, 2026.⁵

Pell Funding and Tightened Eligibility

The law added $10.5 billion in mandatory Pell funding for fiscal year 2026, but also narrowed eligibility. Students whose non-federal grant aid equals or exceeds the full cost of attendance are excluded, as are those with a Student Aid Index at or above twice the maximum Pell award. Foreign income now counts in eligibility calculations.⁶ The Congressional Budget Office projected in February 2026 that Pell still faces a $5.4 billion shortfall for fiscal year 2026, growing to $11.5 billion the following year.⁷

Programs That Lose Loan Access

An earnings test now determines whether a program can keep federal Direct Loans. The median earnings of completers four years out must exceed the median earnings of high school graduates in the same state (for undergraduate programs) or of bachelor’s degree holders (for graduate programs). A program that fails in at least two of three consecutive years loses Direct Loan eligibility, and the institution must warn currently enrolled students.²

A related tool now appears on your FAFSA. As of December 7, 2025, a new “earnings indicator” on the FAFSA submission summary flags schools whose graduates’ median earnings four years after completion fall below the median for high school graduates in the same state. The flag does not affect eligibility for aid. According to the Department of Education, about 25 percent of students who saw a low-earnings flag removed that school from their application.⁸

Endowment Tax on Wealthy Private Universities

The old flat 1.4 percent excise tax on private university endowment income is now tiered by endowment assets per student:

$500,000 to $750,000 per student: 1.4 percent.
$750,000 to $2 million per student: 4 percent.
Above $2 million per student: 8 percent.⁹

The tax applies only to private institutions with at least 3,000 tuition-paying students.¹⁰ In 2023, 56 universities paid roughly $380 million under the old flat rate; an estimated 58 additional institutions could become subject to the tax under the new thresholds.⁹

Where Student Loans and FAFSA Now Live

An executive order signed March 20, 2025, directed the dismantling of the Department of Education, and its functions are being transferred to other agencies.¹¹ Treasury has entered a partnership to collect on defaulted federal student loans and is expected to eventually take over broader management of the $1.7 trillion student loan portfolio and FAFSA administration.¹² The Department of Labor has taken transfers of career and technical education (Perkins V), adult education (WIOA), and postsecondary workforce programs. Health and Human Services is handling foreign medical accreditation and the Child Care Access Means Parents in School program. The State Department is now involved in international education and foreign gift reporting under Section 117 of the Higher Education Act.¹³

The department has lost roughly half its workforce. In 2025, 1,400 employees received layoff notices and another 600 retired or accepted voluntary separation. Nearly half of Federal Student Aid staff have departed. A Government Accountability Office report found that Federal Student Aid stopped assessing loan servicers on customer service standards in February 2025 due to lack of staff, and four of five servicers failed to meet performance standards.¹⁴ If you are dealing with servicer errors or a repayment problem, expect longer response times.

The restructuring is contested. Democratic senators have called the loan transfer to Treasury “illegal,” arguing the department cannot transfer statutory responsibilities without congressional authorization. The GAO opened an investigation in March 2026 into the grant transfers to Labor, and the department’s Acting Inspector General is investigating the dismantling effort.¹⁵ Congress passed a fiscal 2026 spending package that increased the department’s funding and rejected the administration’s proposed cuts, though the department has said the appropriations bill does not prevent it from partnering with other agencies.¹⁴

On the FAFSA side, the department released the 2026-27 form ahead of schedule; more than 10 million forms had been processed as of March 2026, and the department stated it is on track to release the 2027-28 form by October 1, 2026.⁸

Rewriting the Accreditation Rules

Accreditation is how a school qualifies for federal aid in the first place. On April 23, 2025, President Trump signed an executive order titled “Reforming Accreditation to Strengthen Higher Education.” It directed the Department of Education to hold accreditors accountable for mandating diversity, equity, and inclusion initiatives that involve unlawful discrimination, up to terminating federal recognition, and specifically directed investigations into the accrediting bodies for law schools, medical schools, and graduate medical education. The order also instructed the department to resume recognizing new accreditors, launch experimental quality-assurance pathways, and streamline the process for institutions to change accreditors.¹⁶

A negotiated rulemaking committee established in January 2026 reached consensus on May 21, 2026, on draft regulations expected to be finalized by November 2026 and to take effect in July 2027.¹⁷ The draft framework would:

Shift evaluation from inputs like library holdings and classroom hours toward student outcomes such as graduation rates, licensure results, and post-completion earnings.¹⁸
Require accreditors to oversee institutional policies ensuring a range of political viewpoints, including mechanisms to measure perceptions of diversity among students and faculty. Religious institutions would be exempt.
Bar accreditors from mandating policies that support racial diversity.
Eliminate the current two-year operating requirement before a new accreditor can seek federal recognition.
Require programmatic accreditors to sever formal ties with related professional membership organizations.¹⁷

Higher education leaders anticipate legal challenges.¹⁷ Separately, the HERO Act, reintroduced in February 2025 by Rep. Chip Roy and Sen. Mike Lee, would let states create their own alternative accreditation systems and grant state-accredited institutions federal aid eligibility. It has not advanced beyond committee.¹⁹

Executive Actions on Admissions, DEI, and Individual Schools

An August 7, 2025, presidential memorandum directed the department to upgrade the federal postsecondary data system (IPEDS), expand admissions reporting, and take Title IV enforcement action against institutions that fail to submit timely or accurate data. The stated goal is to identify use of “diversity statements” or other proxies that may circumvent the Supreme Court’s prohibition on race-based admissions.²⁰

According to the Department of Education, resolution agreements to end DEI programming and restore “merit and equal treatment” have been reached with Columbia, Brown, Northwestern, Cornell, and the University of Virginia. Separate Title IX agreements were reached with the University of Pennsylvania and Wagner College. The department also ended funding to what it described as “racially discriminatory” discretionary grant programs at minority-serving institutions in September 2025.¹¹

A June 4, 2025, executive order suspended the entry of foreign nationals seeking to study at Harvard University under F, M, or J visas for six months. The order cited more than $1 billion in foreign funding Harvard received over the previous decade, including over $150 million from China, and alleged deficient reporting on foreign student misconduct.²¹

What States Are Doing

Governors have significant leverage over public higher education. In 37 states, all public four-year institutions are governed by boards the governor controls. Roughly 240 governing boards oversee more than 1,000 schools and about six million undergraduates nationwide.²²

Utah has moved the furthest. In 2023, the state reorganized its Board of Higher Education around workforce outcomes and affordability. In 2024, the legislature prohibited public institutions from requiring diversity statements or taking institutional positions on political controversies. A 2025 law required Utah’s eight degree-granting institutions to redirect $60 million from administrative costs and underperforming programs to fields like engineering, nursing, and artificial intelligence. In 2026, the state added a $50 million research funding pilot aligned with state industries and directed its higher education system to organize institutions into geographic regions to integrate admissions and transfer pathways.²³

On campus speech, more than a dozen states since 2017 have enacted legislation based on or inspired by the Goldwater Institute’s model bill, which calls for policies affirming free expression, sanctions for those who interfere with others’ speech rights, institutional neutrality on public controversies, and annual reporting to the governor and legislature. Adopters include North Carolina, Tennessee, Virginia, Arizona, Colorado, and Missouri.²⁴

Newer state laws go further. Ohio’s Senate Bill 1 mandates “intellectual diversity,” prohibits voluntary DEI training, and allows formal complaints against administrators or peers for interfering with “intellectual diversity rights.” Texas replaced traditional faculty senates with advisory bodies whose members are appointed by university presidents and governors. A separate Texas bill that tried to ban campus “expressive activity” between 10 p.m. and 8 a.m. was enjoined by a federal judge.²⁵

The Numbers Driving the Reforms

For 2025-26, average published tuition and fees are $11,950 for in-state students at public four-year institutions, $31,880 for out-of-state students, and $45,000 at private nonprofit four-year schools. Grant aid has pushed average net tuition at public four-year schools down to roughly $2,300, below its 2012-13 peak, though housing, food, and other expenses push total costs much higher.²⁶

Total annual education borrowing hit $102.6 billion in 2024-25 after 13 years of decline. Among 2023-24 bachelor’s degree recipients, 47 percent graduated with debt, averaging $29,560.²⁶ As of October 2025, more than 5.5 million federal borrowers were in default, with another 3.7 million approaching it. The maximum Pell Grant, $7,395 for 2025-26, now covers just 24 percent of the cost of attending a four-year public college, an all-time low compared with over 75 percent in 1975-76.⁷

What Is Still Pending

The Higher Education Act, the foundational federal law governing student aid, accreditation, and institutional oversight, has not been comprehensively reauthorized since 2008; it has operated under a series of temporary extensions. Prior rewrites like the 2019 College Affordability Act did not advance beyond committee.²⁷ Rather than a full reauthorization, the current Congress rewrote large portions of the student lending and aid sections through the One Big Beautiful Bill Act.

One notable pending proposal is the Student Protection and Success Act, introduced in March 2026 by Senators Jeanne Shaheen and Todd Young. It would make institutions with a cohort repayment rate of 15 percent or below ineligible for federal aid starting in fiscal year 2028, and would require annual risk-sharing payments based on the balance of loans where students are not repaying, capped at 2.5 percent of an institution’s total annual revenues. Revenue from those payments would fund a College Opportunity Bonus Program granting money to institutions with strong repayment records.²⁸ Critics of risk-sharing generally warn that formulas are complex, that excluding defaulted loans can create perverse incentives, and that institutions could opt out of federal lending while continuing to receive Pell.²⁹

Other bills on Pell Grant levels, interest rates, financial aid transparency, FAFSA verification, and for-profit college regulation remain in committee in the 119th Congress.³⁰ For students and borrowers, the practical calendar is clear: new borrowing caps, the RAP repayment plan, Workforce Pell, and taxable loan discharges all arrive by mid-2026, and the rewritten accreditation rules follow in July 2027.

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