If you’re a student, parent, or borrower wondering what’s really happening with student loans in 2025, buckle up — because Congress is proposing sweeping changes that could reshape how college is paid for in America.
The College Cost Reduction Act of 2025 aims to overhaul federal student aid, with major implications for loan forgiveness, repayment plans, borrowing limits, and Pell Grants. Here’s a clear breakdown of what’s changing — and how it might affect you.
🔑 Key Takeaways at a Glance
- Federal student loan forgiveness may become harder to get
- Interest subsidies on undergraduate loans could be eliminated
- Loan limits for graduate students and Parent PLUS borrowers are being slashed
- New income-driven repayment (IDR) rules could increase monthly payments
- Pell Grants get tied more directly to institutional outcomes
🎓 1. Federal Student Loan Forgiveness Is Getting a Major Overhaul
The bill eliminates the Public Service Loan Forgiveness (PSLF) program entirely for new borrowers after July 1, 2025.
For everyone else, the new system sets strict forgiveness conditions:
- Forgiveness only applies after 20 years of full repayment
- Borrowers must make consistent monthly payments without interruption
- Forgiveness is capped at $30,000 — no matter your total debt
No more blanket forgiveness or generous cancellation programs tied to public service. Instead, the new model promotes repayment, not forgiveness .
💸 2. Interest Subsidies on Undergraduate Loans? Gone.
Under the proposed changes, subsidized federal student loans would be eliminated for new borrowers. These are the loans where the government pays your interest while you’re in school.
Instead, all new federal loans would be unsubsidized, meaning interest starts accruing immediately — even while you’re still in class .
This move could make borrowing more expensive over time, especially for lower-income undergrads.
📉 3. Borrowing Limits Are Shrinking for Many
The new legislation dramatically cuts how much students and families can borrow:
- Graduate students will face an annual borrowing cap of $25,000 and a lifetime cap of $100,000
- Parent PLUS loans, currently with virtually no cap, will be limited to $50,000 total per child
These limits aim to curb runaway graduate debt, but could also push more students into private loans, which lack the same protections and flexible repayment options .
⚖️ 4. Income-Driven Repayment (IDR) Rules Get Stricter
The bill proposes a new streamlined IDR plan, replacing multiple older versions. But here’s the catch:
- Payments will be set at 10% of discretionary income
- Discretionary income will be defined more broadly (more of your income counts)
- There’s no interest subsidy, meaning unpaid interest won’t be forgiven over time
- Forgiveness after 20 years is capped at $30,000, even under IDR
These changes are intended to simplify repayment but could increase monthly costs for many borrowers .
🎁 5. Pell Grants Now Tied to School Performance
There’s a new push for accountability in higher education. Under this bill:
- Colleges must meet specific performance benchmarks to remain eligible for Pell Grant funding
- Pell Grant amounts will be tiered, with bonuses for institutions that improve graduation and employment outcomes
This could lead to less federal money going to underperforming schools — and more scrutiny of where students choose to enroll .
🚨 Who This Affects Most
- Current high school students applying for college in 2025+
- Graduate students planning to borrow more than $100,000
- Parents who planned to rely on PLUS Loans
- Borrowers in forgiveness plans, including PSLF
- Anyone on IDR hoping to minimize long-term costs
🧭 What You Should Do Now
If you’re a student or borrower, here’s how to get ahead of these changes:
- Apply before July 1, 2025 – If eligible, you may still qualify under current PSLF and loan terms.
- Rethink graduate school borrowing – Consider in-state options or employer-sponsored programs.
- Review IDR alternatives – Explore repayment simulations with tools like StudentAid.gov’s Loan Simulator.
- Be cautious of private loans – Federal loans, even under the new plan, offer more protections.
- Track your Pell eligibility – Especially if your college is low-performing.
📌 Final Thoughts
The College Cost Reduction Act signals a fundamental shift in how the government views student debt. Forgiveness is no longer the central goal — accountability and repayment are.
Whether these changes pass in their current form or not, the writing is on the wall: college borrowing is about to get more expensive and less forgiving.
Stay informed. Ask questions. And make smart borrowing decisions with the long game in mind.
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More Analysis
| Section | Policy Area | What Current Law Is | What the Bill Would Do |
|---|---|---|---|
| TITLE VIII – COMMITTEE ON HEALTH, EDUCATION, LABOR AND PENSIONS | |||
| 81001 – Loan Limits | Federal loan origination (Graduate & Parent) | – Unlimited Graduate PLUS and Parent PLUS loans up to Cost of Attendance. – No aggregate limit for graduate unsubsidized loans. |
– Sets new aggregate caps for graduate borrowers (to be set by ED via regulation) and parent borrowers (cap tied to undergraduate annual limits). – Terminates all new Graduate & Parent PLUS loans beginning with the first award year after enactment.[81001] |
| 82001 – Loan Repayment | Repayment plan menu prescribed in HEA; multiple income-driven options. | – Consolidates repayment into a single “standard + IDR” schedule: 10-year fixed payment unless borrower opts into one income-driven formula. – Caps monthly payment at 10% of discretionary income and forgives any remaining balance after 20 years (undergrad) / 25 years (grad). – Automatic IDR enrollment for borrowers 90 days delinquent.[82001] |
|
| 82002 – Deferment & Forbearance | Numerous categorical deferments; 3-year general forbearance. | – Streamlines to five unified deferments (economic hardship, military, cancer treatment, etc.). – Limits general forbearance to 12 months lifetime and counts any deferment/forbearance time toward forgiveness clocks if borrower makes $0 payments via IDR.[82002] |
|
| 82003 – Loan Rehabilitation | One-time rehabilitation; 9 consecutive on-time payments. | – Creates one-time “Fresh Start 2.0”: eight on-time payments; credit reporting cleared within 90 days of completion.[82003] | |
| 82004 – Public Service Loan Forgiveness (PSLF) | Forgiveness after 120 qualifying payments. | – Keeps 120-payment rule but: – Counts adjacent deferment periods (up to 24 months) as qualifying. – Allows lump-sum employer payments to count as multiple qualifying payments. – Creates “early-career PSLF” pathway forgiving up to $17,500 of undergraduate debt after five years of qualifying service.[82004] |
|
| 82005 – Student Loan Servicing | ED contracts set servicing rules. | – Mandates a single, standardized borrower account portal and requires servicers to provide “annual repayment readiness” statements. – Imposes tiered penalty regime for servicing errors.[82005] |
|
| TITLE VII – FINANCE (Tax) | |||
| 70112 – §127 Employer Assistance | Temporary (§127) exclusion for employer student-loan payments ends 12/31/25; frozen at $5,250. | – Makes exclusion permanent and indexes the $5,250 cap for inflation (first adjustment in 2027). [70112] | |
| 70117 – §529 Rollovers | Rollover from 529 to ABLE and vice-versa barred after 2025. | – Extends ability to roll 529 funds to ABLE accounts permanently (helps disabled borrowers). [70117] | |
| 70119 – §108(f)(5) Discharge Exclusion | Discharge (death/disability) exclusion sunsets after 2025; no SSN rule. | – Makes exclusion permanent and adds Social-Security-number reporting requirement. [70119] | |
| 70411 ff. – Scholarship & Tuition Tax Incentives | — | Indirectly eases loan demand by expanding tax-favored K-12 and post-secondary savings and scholarships, potentially reducing future borrowing needs. | |
| TITLE I – COMMITTEE ON AGRICULTURE, NUTRITION & FORESTRY | |||
| — | — | Existing income exclusions for loan-forgiveness of farm service debt. | No change. (Student-loan-specific provisions are confined to Titles VII & VIII.) |
Key Take-aways
- PLUS Loans End: New Parent PLUS and Graduate PLUS originations stop; grad and parent borrowing henceforth limited to lower undergraduate-style caps.[81001]
- Unified Repayment: Borrowers enter either a 10-year standard plan or a single simplified IDR plan (10% discretionary income, automatic safety-net enrollment when delinquent).[82001]
- Tighter Deferment/Forbearance: Lifetime general forbearance shrinks to 12 months; time spent in most pauses now counts toward forgiveness if on IDR.[82002]
- Fresh-Start 2.0: Easier path out of default with eight payments and fast credit repair.[82003]
- PSLF Tweaks: Broader qualifying counted months and an early-career partial-forgiveness option after five years.[82004]
- Servicing Overhaul: One borrower portal, annual readiness notices, and penalties for errors.[82005]
- Tax Relief: Employer-paid student-loan help stays tax-free indefinitely and grows with inflation; discharges for death/disability remain nontaxable permanently.[70112][70119]
- No New Interest Subsidy Rules: Stafford and other origination interest provisions unchanged; all reforms focus on limits and repayment.
These measures collectively shift federal student-loan policy toward lower front-end borrowing, standardized income-based repayment, stricter pause rules, and stable tax benefits for forgiven or employer-paid debt.
Student Loan Attorney Jay Fleishman Provided the Following Assessment
On July 1, 2025, the U.S. House of Representatives passed the College Cost Reduction Act, part of a sweeping legislative package informally known as the “One Big Beautiful Bill.” Hidden within its hundreds of pages is a dramatic overhaul of federal student loan programs — and it’s going to affect current and future borrowers in very different ways.
Whether you already have federal student loans, are a Parent PLUS borrower, or plan to take out new loans after June 30, 2026 — this new law could seriously change your repayment options, forgiveness eligibility, and monthly costs.
To help you make sense of it all, we’re sharing insights from leading student loan attorney Jay Fleischman, who broke down the changes and what you need to do next.
👉 If you want personalized guidance on what this means for you, schedule a Planning Session with Jay Fleischman at MoneyWiseLaw.com/appointment.
🔍 Quick Summary of Who Needs to Act
- ✅ Already have loans and don’t plan to borrow more after June 30, 2026? You’re mostly protected — no action needed.
- 🚨 Parent PLUS borrowers? You’ll need to consolidate and enter ICR by June 30, 2026 to keep repayment options open.
- 🆕 Planning to borrow loans after June 30, 2026? Your repayment flexibility drops significantly — book a strategy session ASAP.
🧾 The Key Student Loan Changes in the 2025 Law
1. Uniform Repayment Plan Requirement
All federal student loans will now be required to follow one uniform repayment plan — no more mixing and matching plans across loans.
2. Old Repayment Plans Sunset by July 1, 2028
Borrowers currently enrolled in:
- Income-Contingent Repayment (ICR)
- Income-Based Repayment (IBR)
- PAYE or SAVE plans …will be automatically transitioned into a new version of IBR or offered a new Repayment Assistance Plan (RAP).
This transition must happen by July 1, 2028, and affects anyone currently in repayment or administrative forbearance under those plans.
3. Parent PLUS Loan Borrowers Must Act by June 30, 2026
If you have a Parent PLUS Loan, here’s what to know:
- If you consolidate and enroll in ICR by June 30, 2026, you’ll stay eligible for income-driven repayment.
- If you don’t do this by the deadline, you’ll lose access to all IDR plans — leaving only standard or graduated repayment options.
➡️ This is a hard deadline. If you miss it, there’s no fix. Meet with an expert now to get this done on time.
4. Borrowing After June 30, 2026 Comes With Big Strings
If you take out any new federal loan after that date:
- You’ll fall under the new rules — even if you already have older loans.
- You may lose access to IDR and forgiveness programs, especially if you’re a Parent PLUS borrower.
5. Deferment and Forbearance Narrowed
- Loans disbursed before July 1, 2027 keep current deferment options for unemployment and economic hardship.
- Loans after July 1, 2027 have limited or restricted deferment access.
6. Loan Rehabilitation Limit Raised
Good news here: starting July 1, 2027, you’ll be allowed to rehabilitate a defaulted loan twice, up from the previous one-time limit.
7. Borrower Defense Protections Rolled Back
The new law states:
- Borrower defense rules from 2022 won’t apply to loans made before July 1, 2035.
- Older loans fall back to pre-2022 regulations (like 2016 or 2019 rules).
- Sweet v. Cardona borrowers are not impacted.
This weakens protections for borrowers who were misled by their schools — unless their loans fall under one of those specific earlier rule sets.
🎓 Public Service Loan Forgiveness (PSLF) Remains… for Now
Surprisingly, the bill makes no direct changes to PSLF. But that doesn’t mean it’s safe forever. The U.S. Department of Education is currently handling potential changes through separate negotiated rulemaking sessions — and future restrictions are likely.
Important note: Parent PLUS borrowers who take out new loans after June 30, 2026 will not qualify for any repayment plan eligible for PSLF.
⚠️ Bottom Line: The Window to Act Is Closing Fast
The new system is less flexible, more complex, and guarantees higher payments for millions of borrowers. If you’re confused, overwhelmed, or unsure what to do — you’re not alone. But you can protect your repayment options and future eligibility by taking the right steps now.
🎯 Your Next Step:
Book a Planning Session with Attorney Jay Fleischman today. He’ll help you:
- Understand which plans you’re eligible for
- Strategize how to consolidate or switch repayment plans
- Make sure you don’t miss crucial deadlines
🔗 Click here to schedule your session with Jay
