How new education policies could change financial aid and loans in 2026

With the Department of Education (ED) restructuring and new legislation taking effect, the cost of assuming college debt, loan repayment, and savings strategies could all shift in the coming year.

Higher education is in the midst of a major transition shaped by two forces: the Trump administration’s downsizing of the Department of Education and the recently enacted One Big Beautiful Bill Act (OBBBA). The ED’s workforce has been reduced by roughly half, and responsibility for the $1.6 trillion federal student loan portfolio may potentially shift to the Small Business Administration (SBA). Meanwhile, after more than three years of pandemic-era relief, federal student loan payments have resumed,¹ bringing millions of borrowers back into active repayment amid broader policy and servicing changes.

At the same time, the OBBBA is introducing new rules for Pell Grant eligibility, FAFSA calculations, loan repayment plans, and 529 plan flexibility—some already in effect, others taking effect in 2026. Supporters see opportunities for greater efficiency, while critics warn that redistributing responsibilities among agencies could cause confusion, disrupt aid delivery, or weaken student protections. The true impact will depend on how these transitions unfold over the coming year.

Because conditions continue to evolve, the information provided here reflects the best understanding available as of November 2025. This period of transition may feel uncertain, and we’ve included resources throughout to help families and borrowers stay informed as policies develop.

 

For parents saving and student preparing for college  

Could the Department of Education be shut down entirely?

While the administration announced plans in early 2025 to “shut down” the ED, Congress would need to approve any formal elimination, making a complete shutdown unlikely in the near term.

• Current actions focus on restructuring the agency’s functions—loan oversight has been proposed to move to the Small Business Administration, with the Treasury Department expected to assume additional responsibilities.
• Core programs such as Pell Grants and federal loan servicing remain in place, though administrative roles may continue to evolve.

The impact:
The ED’s downsizing represents a significant transition, but not an immediate loss of access to aid. Families should anticipate new points of contact and possibly different timelines for loan servicing and support. 

Will federal student aid still be available after the ED downsizing?  

Programs such as Pell Grants and Direct Loans are authorized by Congress and will continue, even as administrative oversight evolves. However, the One Big Beautiful Bill Act and the administration’s fiscal year 2026 budget proposal would change how need and eligibility are determined. 

According to the Department of Education in August 2025, students will be ineligible for Pell Grants if their Student Aid Index (SAI) exceeds $14,790 for the 2026–2027 award year.  

• In practice, that means some families earning around $100,000—depending on household size and other factors—could still qualify for limited Pell aid. At the same time, the proposed 2026–2027 budget would reduce the maximum Pell Grant to $5,710, roughly $1,685 lower than the 2024–2025 level. 
• Because the OBBBA does not dramatically change the SAI calculation, eligibility for loans may not be affected as directly as Pell Grants. However, federal borrowing limits will tighten for graduate students and parent PLUS loans.

The impact:
Pell Grants and Direct Loans will remain available, but eligibility thresholds and some maximum awards are tightening. The SAI limit effectively narrows eligibility for middle-income households while maintaining access for students with the greatest financial need. Families should review the Department of Education’s 2026–2027 FAFSA and Pell Grant update and the Pell Grant page for the latest criteria. 

Will FAFSA still be used to apply for aid? 

Yes. The FAFSA remains the required form for determining eligibility for federal grants, loans, and work-study programs. The Department of Education continues to refine the form under the FAFSA Simplification Act. That act replaced the Expected Family Contribution with the Student Aid Index starting with the 2024–2025 academic year, and changes are still being phased in through 2026–2027. 

• Restored small-business and family-farm exclusion: Under the OBBBA, the net worth of family-owned small businesses (with 100 or fewer employees) and family farms will be excluded from asset calculations starting with the 2026–2027 FAFSA, restoring a policy that existed prior to 2024. 
• Processing and timing issues: In recent years, the FAFSA rollout experienced processing delays. Encouragingly, the 2026–2027 FAFSA launched in September, ahead of the typical schedule. Students and families are advised to complete and submit the FAFSA soon after the application window opens each year to help ensure aid is processed on time. 

The impact:
FAFSA will continue to be the central access point for federal aid, but ongoing updates may lead to short-term confusion or slower processing times. Submitting early and checking StudentAid.gov regularly remains the best strategy for timely aid delivery. 

How could reduced federal funding and oversight affect college access and quality? 

Federal funding supports more than just financial aid—it underpins research, institutional grants, and key accountability measures that help keep tuition in check and ensure educational quality. If those resources shrink, states, accrediting agencies, or private organizations would ideally fill the gap, but most have limited capacity or uneven funding structures to do so effectively.  

In the fiscal year 2026 budget proposal, the Department of Education called for more than $5 billion in reductions to higher-education and research programs, including cuts to institutional aid that supports low-income and first-generation students.

• Reduced federal grants and programs could lead institutions—especially research universities and public colleges—to shift costs to students through higher tuition or program fees. 
• Uneven state resources may widen the gap between well-funded and underfunded systems, deepening disparities in access and educational quality. 
• Less federal oversight could weaken enforcement of student protections such as transparency in outcomes, accreditation standards, and loan servicing accountability. 

The impact:
Federal retrenchment would likely have ripple effects across the higher-education ecosystem—affecting affordability, academic quality, and consumer protections. 

Will I still be able to compare colleges and outcomes? 

Yes. Students and families will still be able to estimate and compare college costs, but the tools used to calculate those estimates are evolving. Two key tools developed by the Department of Education are the College Scorecard and Net Price Calculators (which colleges are required to provide). 

The bipartisan proposed Net Price Calculator Improvement Act would establish minimum standards for all calculators and authorize the creation of a universal net price calculator—a single tool that lets families enter information once and then compare estimated costs across multiple institutions. The goal is to help students make better apples-to-apples comparisons when evaluating college affordability. 

The impact: 
Prospective students will continue to have access to college cost estimates, and the tools could become more accurate, consistent, and user-friendly. However, with the downsizing, we may end up losing the government-owned combined calculator page with all schools listed together for easy comparisons.

Will my 529 college savings plan be negatively affected?   

No. 529 plans are state-managed and regulated by the IRS, not the Department of Education. However, the OBBBA has expanded what qualifies as a tax-free education expense: 

• As of July 2025, funds can be used for more costs associated with credentialing, apprenticeship, and continuing education programs. 
• Starting in 2026, the annual K–12 withdrawal limit doubles from $10,000 to $20,000 per student. 

The impact: 
Families can use 529 funds even more flexibly than before, and saving for future education can help limit the accumulation of student debt.

 

For students repaying federal loans

How are loan repayment plans changing? 

Federal student loan repayment has restarted after the end of the COVID-era payment pause, and millions of borrowers have already resumed monthly payments. Under the OBBBA, repayment and forgiveness programs will change significantly by July 2026. The Department of Education is still adjusting plan rules and servicing systems in response to the new law, as well as ongoing legal and administrative changes. 

• Repayment has resumed: The nationwide pause on payments and interest ended in 2024, and borrowers are again required to make payments (unless they are in non-COVID deferral or forbearance). As of summer 2025, government data show that nearly one-third of borrowers are at least 90 days delinquent, with some entering default and facing wage garnishment or collection activity if they do not contact their servicer. 
• The SAVE plan is ending, but borrowers still face uncertainty: The Saving on a Valuable Education (SAVE) plan, which replaced the Revised Pay as You Earn plan, is being eliminated under the OBBBA no later than 2028. While interest on those loans began accruing August 1, 2025, aspects of the plan remain under court review. (See IDR Plan Court Actions: Impact on Borrowers for the latest information.) Therefore, those borrowers are currently not required to make monthly payments, as the payment amounts cannot be determined. Borrowers may prevent interest from building up by logging into their account via studentaid.gov and making interest-only payments. Because SAVE borrowers will eventually be required to switch to a different repayment plan, they should consider proactively making the change.  
• Income-driven repayment (IDR) plans will change dramatically: Most repayment plans will be eliminated by July 2028 (or sooner), replaced by two simplified options: one standard repayment plan (not income-driven) and the repayment assistance plan (RAP). Only one existing income-driven plan, the income-based repayment (IBR) plan, will be grandfathered, so borrowers using other plans will need to make a switch. The calculations of monthly payments under RAP and the new standard repayment plan are significantly different from existing plans, so borrowers should reevaluate their options. Compared with current plans, RAP makes the path to loan forgiveness harder, requiring 30 years of repayment. On the positive side, borrowers whose monthly payments are less than the interest owed will not have the interest shortfall added to their principal balance. 

The impact:
Repayment has resumed, but many borrowers are struggling to keep up after the long pause. Those behind on payments should immediately contact their loan servicer or visit StudentAid.gov to explore income-driven repayment or the Fresh Start initiative, which can restore eligibility for aid and halt collections. Borrowers enrolled in SAVE or other IDR programs should watch for policy updates and start to evaluate their options well before July 2026. 

Will my loan servicer or payment process change?   

Yes. Many borrowers are already seeing changes as the Department of Education overhauls its federal loan servicing system under the Unified Servicing and Data Solution (USDS) initiative. This multiyear transition began in 2024. It is replacing older contracts and could result in new companies managing borrowers’ loans as well as updates to payment portals and communication channels. Changes under the OBBBA and as a result of court cases also require significant updates by servicers.

• New servicers and platforms: The ED is phasing out several legacy contracts and reassigning accounts to new federal loan servicing providers. Borrowers may receive notices that their loans have been transferred to a different company—not just a new online system—along with new payment instructions or contact information. It’s essential that borrowers verify all communications through StudentAid.gov and update contact information to ensure they receive accurate payment details. 
• Improved servicing standards: The USDS model is designed to create a more unified borrower experience, with standardized payment processing, clearer statements, and consistent treatment across servicers. However, transitions between contractors may cause short-term confusion or delays in account updates. 

The impact: 
Borrowers could see both new servicing companies and new digital platforms managing their accounts. While the long-term goal is better transparency and customer service, the rollout may cause short-term disruptions or errors. To avoid missed payments, borrowers should confirm their current servicer, review automatic payment settings, and save documentation of any changes. 

Will Public Student Loan Forgiveness (PSLF) and other forgiveness programs still exist?   

Yes. Programs like Public Service Loan Forgiveness and forgiveness under the IBR plan are authorized by Congress and would require legislative action to change or eliminate. As noted above, the OBBBA clarified forgiveness provisions going forward under the new RAP. While the Department of Education’s restructuring could affect how these programs are administered, the programs themselves remain in place. 

• The ED continues to process PSLF applications, though some borrowers have experienced delays due to servicer transitions and ongoing reviews of qualifying payment counts. 
• In October 2025, the ED reached an agreement to restart processing of student loan forgiveness under the IBR, Income-contingent repayment (ICR) and Pay as you earn (PAYE) repayment plans. One helpful aspect of this development is that ICR and PAYE borrowers do not need to switch to IBR to receive forgiveness if they have met the other requirements. The SAVE plan is not covered under this agreement, however, which may be another reason for those borrowers to proactively switch to a different plan.
• Because of the current administration’s priorities and court rulings, borrowers should not expect broad expansion of loan forgiveness such as the ultimately unsuccessful initiatives attempted by the Biden administration.
• Future administrative changes—such as the move toward the USDS model—may streamline processing and recordkeeping, but short-term disruptions are possible. 

The impact: 
PSLF remains a core forgiveness option for public sector and nonprofit employees. Borrowers should ensure employment certification forms are up to date and verify their servicer information through StudentAid.gov. For forgiveness under any plan, borrowers should ensure they are making required payments and that their servicer’s records are accurate. 

Could student loan interest rates rise? 

Federal student loan rates are set each year based on a formula tied to U.S. Treasury yields, which climbed sharply in 2002 and 2023. Interest rates for 2025–2026 range from 6.39% for undergraduates to 8.94% for PLUS loans. 

• New limitations on federal loan amounts under the OBBBA, as well as potential future reforms, will likely increase the role of private institutions in education financing. Therefore, borrowers could face variable rate options or fewer built-in protections. 
• Borrowers with existing federal loans will continue under fixed rates, but new borrowers could see more volatile interest costs if privatization expands. 

The impact: 
Current rate increases are market driven, not directly linked to the Department of Education’s downsizing. However, greater private involvement in lending could lead to higher variability and fewer safeguards over time. 

Will borrower protections like deferment and forbearance remain?   

Yes, though the process for accessing them could change. Current federal policy allows borrowers to pause payments under deferment or forbearance in cases of financial hardship, unemployment, or military service. These protections remain in effect but may be administered differently under new servicing contracts. 

• The COVID-era blanket payment pause ended in 2024, and millions of borrowers resumed payments in 2025. 
• Access to deferment and forbearance remains available on a case-by-case basis, though policy reviews could tighten eligibility standards. 
• Borrowers already in default are ineligible for standard deferment or forbearance but may apply for the Fresh Start program to regain eligibility and stop wage garnishment. 

The impact:  
Deferment and forbearance protections continue under federal law, but borrowers must actively apply and stay in contact with their servicer. As servicing transitions continue, it’s especially important to confirm program terms and maintain documentation of requests. 

Who will resolve errors or complaints?  

Currently, both the Department of Education and the Consumer Financial Protection Bureau (CFPB) handle borrower complaints related to federal student loans. If the ED’s oversight responsibilities are reduced, states or other federal agencies may take on expanded roles in monitoring servicer performance and consumer protections. 

• Recent CFPB funding reductions may slow the resolution of complaints, particularly as the ED transitions to new servicers. 
• Some states have developed their own student loan ombudsman offices, which can assist borrowers if federal channels are delayed. 

Borrowers can continue submitting official complaints via StudentAid.gov or consumerfinance.gov. 

The impact:
Borrowers may experience slower response times during the transition period, but multiple avenues remain available for dispute resolution. Staying proactive—by saving correspondence, tracking complaint status, and using verified federal portals—will help ensure concerns are addressed. 

 

What parents and students can do now

For parents 

• Open a 529 account if you haven’t already done so, and continue to contribute regularly. Consider increasing contributions if your budget allows it. 
• Apply for financial aid through the FAFSA as soon as applications open to avoid processing delays and possibly receiving funding after tuition bills are due. 
• Stay in contact with your child’s financial aid office and monitor legislative updates. 

For current and former students 

Log in to StudentAid.gov to confirm your loan servicer and repayment plan details. 

• Stay current on income-driven repayment program updates and annual income recertifications. 
• If you’re behind on payments, contact your loan servicer immediately. Borrowers already in default can request a Fresh Start program or rehabilitation plan to restore eligibility for aid and stop wage garnishment. Note that people who are in forbearance (including those who signed up for SAVE) are not in default. 
• Watch for official communications from the Federal Student Aid office and review your account regularly. 

For everyone 

• Follow legislation on student loans and ED changes at the U.S. Department of Education Newsroom.
• Subscribe to updates from Federal Student Aid and your loan servicer. 
• Use the tools available at the College Affordability and Transparency Center.

Conclusion 

The education landscape is undergoing one of its most significant shifts in decades. The Department of Education’s downsizing, the implementation of the One Big Beautiful Bill Act, and the full return to loan repayment have already begun to reshape how students receive, manage, and repay aid.

For parents, the focus is on adaptability—continuing to save through 529 plans and understanding how new eligibility rules may influence financial planning. For students, vigilance is key: Repayment structures, servicer transitions, and evolving income-driven repayment programs could all affect time lines and obligations.

While the future of federal management remains uncertain, the underlying commitment to support access to higher education remains strong. Staying informed, proactive, and organized will help families and borrowers navigate these changes—and plan confidently for the years ahead.