Big Changes to Federal Student Aid: What the One Big Beautiful Bill Act Means for Borrowers

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, ushering in significant changes to federal student aid programs. Some updates took effect immediately, while others will roll out over the next year and beyond. If you have federal student loans—or are planning to apply for aid—these changes matter.

Below, we break down the most important updates and what they mean for students, parents, and borrowers navigating repayment.

Key FAFSA® Update: Better Reflecting Financial Need

Starting with the 2026–27 FAFSA®, the way financial assets are counted has been updated to more accurately reflect a family’s true financial need. This change applies to all FAFSA forms submitted for that year, including those filed during beta testing that began on August 5, 2025.

Importantly, OBBBA excludes certain assets from consideration, including:

• Small businesses
  
• Family farms
  
• Commercial fishing businesses
  

For many families, this means improved eligibility for federal student aid.

Major Changes to the Income-Based Repayment (IBR) Plan

One of the most impactful updates under OBBBA is the expansion of access to the Income-Based Repayment (IBR) Plan, effective July 4, 2025.

What’s New?

Under the new law, borrowers can now enroll in IBR even if they do not have partial financial hardship—a requirement that previously blocked many higher-income borrowers.

Additionally, Parent PLUS borrowers may now access IBR if they:

1. Consolidate their Parent PLUS loans into a Direct Consolidation Loan, and
   
2. Enroll in the Income-Contingent Repayment (ICR) Plan, making at least one full payment before switching to IBR.
   

This is a meaningful expansion of options for parents who previously had very limited repayment flexibility.

What’s Not Changing About IBR

While eligibility has expanded, the core structure of IBR remains the same:

• Monthly payments are still capped at what you’d pay under a 10-year Standard Repayment Plan.
  
• Your payment will never be higher than the standard 10-year amount.
  
  

The payment formulas also remain unchanged:

• Borrowers before July 1, 2014:
  
  
  • 15% of discretionary income
    
  • Up to 25 years of repayment
    
    
• Borrowers on or after July 1, 2014 (or with no prior balance):
  
  
  • 10% of discretionary income
    
  • Up to 20 years of repayment
    
    

Who Still Can’t Access IBR?

Even with expanded eligibility, some borrowers remain excluded unless they take additional steps:

• Parent PLUS borrowers who do not consolidate
  
• Borrowers with Perkins Loans or other smaller loan programs that have not been consolidated into a Direct or FFEL Consolidation Loan
  
  

Critical Deadlines Borrowers Need to Know

OBBBA also introduces important timing rules that borrowers should plan around carefully:

• Borrowers with eligible loans taken out before July 1, 2026 can enroll in IBR, ICR, or PAYE on or after July 1, 2026.
  
• Borrowers who receive a new loan disbursement on or after July 1, 2026 will lose access to IBR, ICR, and PAYE—even if they were previously enrolled.
  

Consolidation Deadline

If you need to consolidate to qualify for IBR, ICR, or PAYE:

• Your consolidation loan must be disbursed by June 30, 2026.
  
• Borrowers are strongly encouraged to apply at least three months earlier to avoid processing delays.
  

OBBBA will eliminate the ICR and PAYE plans entirely in the future, with additional guidance expected—especially for Parent PLUS borrowers who rely on ICR as a pathway to IBR.

What About Partial Financial Hardship?

As of December 22, 2025, the Department of Education officially removed the partial financial hardship requirement from IBR eligibility.

If you were previously denied IBR because your income was too high, this is your opportunity to reapply. Borrowers can submit a new application using the online IDR application, and servicers will process pending requests in the order received.

What This Means for You

These changes open new doors—but also introduce new deadlines and complexity. Choosing the right repayment strategy now can have long-term consequences for monthly payments, forgiveness eligibility, and total repayment cost.

At PeopleJoy, we’re here to help you understand your options and make confident decisions about your student loans. If you think these changes might apply to you, now is the time to review your loans and plan your next steps.

We’ll continue to share updates as more details about OBBBA are released.