Effect of Changes to Title IV of the Higher Education Act in the One Big Beautiful Bill

The “One Big Beautiful Bill Act” (the “Act”), which recently became law, makes significant changes to federal financial aid programs administered under Title IV of the Higher Education Act of 1965 (“HEA”).¹ These changes impact students and institutions of higher education (“IHEs”), and include reductions in the availability of federal student loan funding, new repayment options for student loans, and regulatory provisions intended to promote institutional accountability. These provisions continue the current administration’s focus on reforms to higher education that improve student outcomes and demonstrate a return on investment.

In this Alert, we review the key provisions of the Act related to Title IV of the HEA, provide an overview of the implications for IHEs, and consider options and next steps for IHEs.

Key Provisions of the Bill

• Effects on Loans Available to Students. The Act imposes various loan limits and program cuts impacting federal funding available to undergraduate, graduate, and professional students taking effect on July 1, 2026. The loan limitations include:
  • Termination of Grad PLUS loans for graduate and professional students;
  • Annual loan limits for graduate students of $20,500 (with a lifetime limit of $100,000) and for professional students of $50,000 (with a lifetime limit of $200,000);²
  • Maximum borrowing limit for all students of $257,500 (including undergraduate and graduate loans combined);
  • Annual loan limit for parent borrowers of $20,000, with a lifetime limit of $65,000 per student; and
  • An exclusion from receipt of Pell Grants for students who receive scholarships or external funding covering their full cost of attendance.

  The new loan limits are fixed at the rates in the Act, which does not include any provisions for an annual escalator or increase.

• Student Options for Loan Repayment. The Act makes significant changes to the options for student loan repayment by terminating most current income-driven repayment plans for loans originating after July 1, 2026, including the “Save on a Valuable Education” (SAVE) “Plan, Pay As You Earn” (PAYE) Repayment Plan, and “Income-Contingent Repayment” (ICR) Plan.³ In place of these repayment options, borrowers will be required to select from two new repayment plans: (i) Standard Repayment Plan with fixed payments for 10 to 25 years depending on the amount borrowed, and (ii) the Repayment Assistance Plan (RAP), which requires minimum monthly payments based on the borrower’s adjusted gross income. Borrowers who took out a loan prior to July 1, 2026, can continue to utilize the standard, graduated repayment, and extended repayment plans for those loans. However, borrowers currently repaying their loans under the Public Service Loan Forgiveness program will need to elect into one of the new income-based repayment programs.
• Earnings Premium Framework. The Act establishes a new accountability framework, the Earnings Premium metric, intended to hold IHEs accountable for student income levels following graduation and to demonstrate “return on investment” associated with attaining a degree from such IHE. In general, for both undergraduate and graduate programs, the median earnings of those who completed the programs must exceed the median earnings of those who did not attend comparable programs. The failure of a program to meet the minimum earnings standards could result in the loss of Title IV eligibility for students in that program to receive federal funding and requires public disclosure, including to currently enrolled students. IHEs can appeal data determinations to the Secretary of Education (the “Secretary”), who may permit continued eligibility during the pendency of the appeal. Programs determined ineligible may reapply for Title IV participation after two years of being ineligible.
• Delays to Biden-Era Regulations. Further, the Act delays until July 1, 2035, the borrower defense rule and the closed school discharge regulations that were promulgated during the Biden administration. Under these rules, federal student loan borrowers are entitled to cancellation of their loans in certain instances in which their school engaged in misconduct (borrower defense rule) or where their school closed while they were enrolled or shortly after they withdrew (closed school discharge rule). The Act delays regulations promulgated during the Biden administration, which made it easier for students to access this relief.

Implications on IHEs

Students and IHEs will feel a direct effect of the Title IV reforms in the Act:

• Revenue Pressure on IHEs. The Act emphasizes the return on student investment in their education, in part by placing limits on the loans that students and their parents can incur for their education. The Act’s limitations on student loans may result in some students (or their families) seeking private market loans to access additional funding for education. For other students, these limitations may mean they are unable to access sufficient affordable capital to advance their education. For IHEs, these loan limits will place them under increasing financial pressure. For many institutions, tuition is the IHE’s main revenue source. New limitations on student loan funds may require IHEs to reconsider tuition rates or seek other avenues to financially support attendance, such as additional scholarships and grants. Loan caps and the elimination of the Grad PLUS loan may make it more difficult for students to enroll in tuition-dependent graduate and professional programs. Schools will be balancing fundraising plans against the now higher taxes assessed on certain university endowment funds.⁴
• Changes to Cohort Default Rates. Cohort default rates measure the percentage of student loan borrowers who default in repayment of their loans within a specified timeframe after entering repayment as compared to the total number of borrowers within the applicable cohort. Institutions with failing cohort default rates may lose eligibility to participate in Title IV and face other sanctions. If the new limits on total debt amount and the RAP effectively mitigate total student debt load and maintain repayment affordability, IHEs may see an improvement in their cohort default rates. To the extent available, borrowers will also have to contend with the repayment terms of private loans, though default under those loans will not count against an IHE’s cohort default rate.
• Increased Metrics for Institutional Accountability. The new Earnings Premium metric is consistent with the current administration’s focus on return on investment for students and are not dissimilar to the so-called “Gainful Employment” rules applicable to for-profit IHEs and to certificate programs at nonprofit and public institutions.⁵ Failure to meet this metric is significant—loss of Title IV eligibility for the program— although the final law enacted does not include the cost-sharing provisions included in the House bill, which also would have required institutions to cover a portion of the Title IV funds, if they failed the metric.

  While the compliance date for these new requirements is July 1, 2026, the U.S. Department of Education (“U.S. ED”) must now make decisions about how to implement these new requirements. The statute leaves to the discretion of the Secretary certain key details, including, for example, how U.S. ED will measure median income for graduates, the key metric to determining whether an institution meets or fails the new test. Institutions could look to the Gainful Employment rules to anticipate some of these details, which, for example, use data from the Internal Revenue Service and Social Security Administration for purposes of determining median income. But the administrative burden to IHEs to comply with these new reporting requirements may be steep. Amidst the challenged release of the new Free Application for Federal Student Aid (FAFSA) and changes to U.S. ED technology platforms, U.S. ED delayed implementing other reporting obligations, including those associated with the current Gainful Employment/Fair Value Transparency regulations. IHEs not already subject to these reporting obligations will need to build programs and processes for reporting as well as ongoing monitoring of compliance.

• Reduced Risk of Recoupment for Discharged Federal Loans. Under both the borrower defense and closed school discharge rules, U.S. ED can seek recoupment from the applicable institutions for the funds paid out in discharging the student’s federal loans. The now delayed rules included expanded grounds for discharge, process simplification, and automatic discharge for closed schools, which would have made it easier for students to have their student debt discharged. The Act’s delay of the applicable regulations likely means less discharge of student federal loans and reduced financial risk of recoupment from IHEs.

Next Steps for IHEs

As IHEs plan for the full implementation of the changes to federal financial aid available under Title IV of the HEA, we outline some initial next steps and long-term considerations:

• Timing. U.S. ED has a short time period to implement the significant changes implemented by the Act. Many of these new terms go into effect by July 1, 2026, and may require notice and comment rulemaking in order to implement, including, for example, the new Earnings Premium metric for all IHEs. U.S. ED is operating with significantly reduced staffing, which may slow implementation, notwithstanding the statutory deadlines.
• Addressing Affordability. Absent action on their parts, IHEs may see the demographics on their campuses shift, if the new loan limits and changes to loan availability limit the ability of some students to enroll. Some IHEs may have fewer applicants and fewer enrollees. Some IHEs may be able to make up some of the lost tuition support through scholarships and grants, but those solutions will be increased expenditures on already strapped institution budgets. IHEs with significant portions of their student bodies receiving federal financial aid are likely the most directly hit.
• Changes to Student Loan Counseling. IHEs that participate in Title IV are required to provide counseling to students taking out loans. The changes to loan availability, new limits on loan amounts, and changes to available loan repayment programs changes the nature and type of counseling that loan counselors provide to students. IHEs should update their loan counseling policies and procedures to address these changes.
• Implementation of the Earnings Premium Metric. IHEs now subject to the Earnings Premium metric will need to develop policies and procedures for tracking and reporting data to U.S. ED. IHEs should evaluate determinations of U.S. ED with regard to whether they meet this metric and carefully consider appeal for inaccurate reporting. IHEs may be faced with strategic decision-making when considering offering new programs or addressing programs that don’t meet the metric.
• New Partnership Opportunities. IHEs may consider innovative, industry partnership opportunities to address both the new affordability and accountability terms. Institutions may seek to partner with companies to fund relevant undergraduate and graduate programs. These partnerships could provide both funding to the IHEs and a pipeline of educated, skilled students to be employed at the company following graduation. Or IHEs could seek strategic partnerships or affiliations with complementary IHEs as a mechanism to expand their resources, share costs, increase efficiency, or combine to maintain institutional viability.
• Changes to Educational Programming. IHEs may close, reduce the size of, or change the scope and focus of curriculum for, certain types of programs where the “return on investment” may not be as clear. These impacts may be felt most acutely by community colleges and institutions offering associate’s degrees, though graduates who continue to be students would not be counted against an IHE’s performance, e.g., students in pipeline programs from associate’s degrees to bachelor’s degrees. The scope and availability of tuition-dependent graduate programs may also be impacted.

The Act’s changes to programs and funding available through Title IV of the HEA could very well reshape the landscape of higher education. We will continue to monitor developments relating to actions taken by Congress and U.S. ED to implement these provisions related to the HEA. For additional information, please contact one of the authors or your usual Ropes & Gray advisor.