How the FY26 Budget Bill (HR1) could affect college financial aid is a question many families should be asking right now. The FY26 budget bill recently passed by the House of Representatives (known as HR1, or One Big Beautiful Bill Act) includes several proposed changes that could significantly affect how students and parents pay for college. These provisions would change Pell Grant eligibility, federal student loan limits, and Parent PLUS Loan caps. While the final version of the bill won’t be known for several months, families should consider how potential changes would affect their ability to pay for college.
Remember, it’s better to include affordable choices when building a college list than have no viable options in spring of senior year.
How the FY26 Budget Bill (HR1) Could Change College Financial Aid
New Credit Hour Rules Could Reduce Pell Grant Eligibility
Students would need to complete at least 30 credit hours per academic year to receive the full amount of federal Pell Grants. The current requirement for full-time enrollment is 24 credit hours per year. Students with less than 30 credits would receive a smaller, prorated amount, but if they were enrolled for less than half-time they would not be eligible for any Pell Grant funds.
Many Pell eligible students work full or part time to help pay for college.
Federal Direct Subsidized Loans Would Be Eliminated
Students would only be eligible for Federal Direct Unsubsidized Loans, where interest starts accruing immediately, even while they are still in college.
HR1 Proposes New Lifetime Limit for Undergraduate Student Loans
Students would have a lifetime limit of $50,000 for Federal Undergraduate Direct Loans across all years of undergraduate study. This would represent an increase for Dependent Students and a decrease for Independent Students. Colleges might package more federal loans into their financial aid offers and offer less institutional grant aid as a result.
New Cap on Federal Parent PLUS Loans Could Limit Borrowing Power
Currently parents can take out Federal Parent Direct PLUS Loans up to the annual total cost of attendance minus any other financial aid the student receives, for each individual student. The new lifetime maximum limit would be $50,000, regardless of how many dependent students they borrow for.
For example if a parent borrowed $30,000 in Federal Parent Direct PLUS Loans for one child, they could only borrow up to $20,000 more for other children. Likewise, borrowing $50,000 in the first year would eliminate the option to use Parent Direct PLUS Loans in future years – including for other children or for graduate school.
Once the $50,000 maximum for Federal Direct PLUS Loans is reached, parents would need to seek private loans, often at higher interest rates.
Parent PLUS Loans would also require students to first borrow the maximum annual amount of Federal Undergraduate Direct Loans before parents could borrow Federal Parent Direct PLUS Loans.
HR1 Would Redefine College Financial Need
Currently financial need is the Cost of Attendance (COA) – Student Aid Index (SAI), and SAI is calculated by FAFSA.
HR1 would change this to national Median Cost of College (MCOC) for the program of study – SAI. Even if the student’s actual college costs more than the national median for their program, their demonstrated need would be based on the lower MCOC figure.
It’s not clear how college financial aid offices would respond to this change, but it could lead to significant gaps in aid in future college financial aid offers.
Read more about college costs and financial aid.
Graduate and Professional Students Would Lose Access to PLUS Loans
Federal Unsubsidized Direct Loans would still be available, but would have new lifetime aggregate maximums
- $100,000 for graduate students
- $150,000 for professional students (ex, medical or law school).
These maximums would be cumulative. For instance, if a student borrowed $30,000 for graduate courses before entering medical school, they would only have $120,000 remaining Federal Unsubsidized Direct Loan eligibility to pay for medical school.
And if their parents already maxed out Federal Parent Direct PLUS Loans to pay for undergraduate costs, they might not be able to help with these later costs.
How Families Can Prepare for Potential Financial Aid Changes
These provisions are NOT yet law. They must still pass the Senate, go through reconciliation, and be signed by the President. But the possibility of change makes it important that families start planning now.
- Revise the college list. Include options that would be affordable without relying on large loans.
- Consider in-state and regional public universities. Some offer generous merit aid for strong students or participate in regional tuition reciprocity programs like WUE.
- Consider small liberal arts colleges. Lesser-known schools often offer significant institutional aid.
- Explore community college transfer pathways. These programs can drastically cut costs and still lead to a four-year degree – often with smaller class sizes in critical intro courses.
College Planning Takeaways If Federal Aid Rules Change
Changes in the FY26 budget proposal could reshape the college financial aid landscape, but the largest source of financial aid usually comes directly from colleges. The lower the cost of attendance, the less debt you would have to take on.
Now is the time to have candid (even if uncomfortable) family conversations about college costs, family priorities, and how financial aid may (or may not) work under potential new rules. Remember that what students do in college matters more than the brand name or sticker price.
The best time to start planning for college is before senior year. Starting early gives you time to explore many potential college options, build a smart college list, and allow your student space to identify what college setting best fits their goals and needs. Learn more about my college admissions consulting services or reach out to schedule a meeting.
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