Initial Guidance Issued on Student Aid Changes Two Weeks After Bill Signed into Law
The U.S. Department of Education Friday released a “Dear Colleague Letter” (DCL) outlining the immediate implementation of several higher education provisions from the recently enacted One Big Beautiful Bill Act (OBBB). This action follows President Trump’s signing of the OBBB into law on July 4, 2025.
The DCL, identified as GEN-25-04 and published on July 18, 2025, provides preliminary guidance to institutions of higher education and Federal Student Aid (FSA) partners on changes to federal student loan programs. Acting Under Secretary James Bergeron stated that the OBBB aims to simplify federal student aid programs and repayment options.
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Among the provisions effective upon enactment are changes to income-based repayment (IBR) plans. The OBBB eliminates the requirement for borrowers to demonstrate a “partial financial hardship” to qualify for an IBR plan under section 493C of the Higher Education Act. This change means that borrowers with loans made on or after July 1, 2014, and before July 1, 2026, who previously did not qualify due to a lack of partial financial hardship, are now eligible for an IBR plan with payments set at 10 percent of discretionary income and loan cancellation after 20 years. Previously, these borrowers were limited to the Income Contingent Repayment plan, which required 20 percent of discretionary income and 25 years for cancellation.
The OBBB also expands repayment options for Parent PLUS Loan borrowers. Consolidated loans that repaid Parent PLUS Loans will now be eligible for enrollment in an IBR plan immediately. The Department of Education stated it would provide further information to loan servicers and update the Studentaid.gov website when the system is ready to facilitate these enrollments.
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Regarding loan limits, the OBBB introduces a reduction in the annual loan amount a student can borrow if they are enrolled in a program of study on less than a full-time basis. This reduction will be proportional to their less-than-full-time enrollment. The Department of Education is currently developing a schedule of these reductions, which will be submitted for public comment later this year before being issued for the 2026-27 academic year and beyond.
The legislation also impacts the Public Service Loan Forgiveness (PSLF) program. Payments made under the new Repayment Assistance Plan (RAP), which is set to be effective no later than July 1, 2026, will count toward PSLF eligibility. This PSLF provision is effective upon enactment, meaning borrowers will receive credit for PSLF under RAP once the program launches.
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Additionally, the OBBB addresses specific regulations from the Biden Administration concerning borrower defense to repayment and closed school loan discharges. The bill delays the implementation of the Biden Administration’s Borrower Defense to Repayment regulations (34 CFR Part 685, Subpart D) and the Closed School Loan Discharge regulations (34 CFR 674.33(g), 682.402(d), 685.214). Instead, the Trump Administration’s regulations, which were effective starting July 1, 2020, will remain in effect for loans originated before July 1, 2035. The Department plans to publish Federal Register notices to restore the previously effective regulations.
According to the DCL, other significant provisions of the OBBB, such as the creation of the new Repayment Assistance Plan and the Workforce Pell Grant program, are slated to become effective next year, with additional changes phased in over the coming years. The Department of Education stated that further guidance and regulations on these provisions would be issued at a future date.
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