Will the One Big Beautiful Bill Affect Your Child’s Financial Aid Package This Year?

On July 4 of last year, President Trump signed into law the “One Big Beautiful Bill” Act (OBBBA), a budget reconciliation bill that impacted a wide array of public policies.  We published blog posts at that time on some of the major provisions of the bill, including the new student loan limits for graduate and professional schools.  However, the OBBBA also has the potential to impact student loan options for undergraduates, beginning with the upcoming school year. 

For financial aid packages starting after July 1, 2026, colleges have the option to limit the amount of federal student loans offered to undergraduates based on a student’s program of study.  Certain majors generate higher average earnings, making it easier to pay back student loans after graduation.  Engineering and computer science majors, for example, can expect higher starting salaries than those who majored in social work or fine arts, which increases the possibility of default among the latter group.

The OBBBA leaves the decision to colleges—at the discretion of the financial aid administrator—of whether (and how much) to limit federal student loans for lower paid programs of study, as long as the limit is applied consistently to all students in a given program.  Thus, it is difficult to gauge the extent to which this provision of the OBBBA will impact financial aid packages for the upcoming school year.  If smaller federal loan packages make a particular college less desirable to applicants, wouldn’t that induce colleges to forego the option of limiting federal loans?  Perhaps.  But there are three reasons that they might make use of this OBBBA provision.

First, consumer protection for students.  The purpose of the legislation was to limit over-borrowing in which students take out loans that they will not be able to pay back.  Colleges want to avoid graduates trying to service loans that constitute a crushing amount of their monthly income and/or dealing with the negative consequences of defaulting on a loan early in their professional life.

Second, the timing of choosing a major.  For many colleges, students do not choose a major until after freshman or sophomore year.  Therefore, limits on federal student loans for certain programs of study would not necessarily influence their choice of college because they may already be enrolled at a college for a year or two before the limits would start to apply. 

Third, preserving institutional access to federal aid.  Defaulting on student loans affects not only the student but the institution that he or she attended.  Since the late 1980s, the Department of Education has tracked “Cohort Default Rates” (CDRs), which reflect the proportion of students from a particular school who defaulted on their federal student loans prior to the end of the second fiscal year after starting repayment. If a college’s CDR exceeds 40 percent in a given year or 30 percent over 3 years, the school will lose the ability to award federal student loans (as well as Pell Grants) to its students.

What can undergraduates do if colleges limit the amount of federal student loans for their area of study?  An easy way to circumvent the impact of this change is to simply borrow more using private loans.  The downside of this strategy is that private loans generally involve higher interest rates and less flexible repayment options than federal student loans, and eligibility is based on the borrower’s credit score, which could be a problem for some lower income households. 

Perhaps a harder but more sensible path would be to reconsider your choice of major (and prospective career field). If the limited amount of federal loans offered by your college for your desired major is insufficient to cover the cost of attendance, that could be an impetus to explore other options. Some students may “hedge” against less lucrative interests with a second major in a field that offers more financial opportunity.  In other cases, it may make sense to forego a first choice major entirely and instead pursue a program that is not subject to federal student loan limits.

While this option may involve some disappointment and difficult adjustments of expectations in the short run, it may help the student avoid significant financial stress in the future. Also, most college-educated workers in the United States ultimately end up in jobs unrelated to their majors, so one’s choice of major may not be as paramount as it seems at the time in determining the course of a student’s career. 

If you have questions about helping with education funding for your children or grandchildren, please do not hesitate to call or email us any time.