Are you a parent of a high school or college student preparing to navigate college costs amid recent federal policy updates? The newly signed One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings major shifts to federal student aid. If your plan includes Parent PLUS Loans or subsidized Direct Student Loans, this could significantly impact your strategy beginning July 1, 2026.

While most headlines focus on federal budget reshuffling, the real story for families is how this bill affects Pell Grants, federal loans, and the repayment of those loans. Here's what families need to know.

A New Challenge For Families Who Planned

Consider this scenario: A student in the Class of 2025 was accepted into a highly specialized college program, one of only a few in the country, that aligned perfectly with his academic and career goals. His family, excited and prepared, decided to support his decision financially. They had run the numbers and, between Pell Grants, scholarships, savings, Federal Parent Plus Loans, and careful budgeting for repayment based on their income, they planned to borrow $37,000 per year across four years.

He accepted his admission offer on March 1, 2025. However, with the passage of the OBBBA, the foundation of that plan has shifted and will impact his family, as well as the families of current high school students, starting on July 1, 2026.

Bottom Line Impact: Under the new federal loan caps, this family's plan to borrow $148,000 over four years may require adjustments or supplemental funding beyond federal loans.

Four Financial Aid Changes Every Family Must Understand

Let's break it down in plain terms:

1. New Pell Grant Credit Hour Rule

Pell Grants are federal funds awarded to low-income students who meet specific eligibility requirements and do not need to be repaid. While the maximum Pell Grant amount hasn't changed, eligibility has. Students are now required to enroll in at least 15 credit hours per semester (instead of 12). While that seems reasonable for a full-time student, it poses a problem for part-time students or anyone requiring a lighter course load due to the need to work during college, medical reasons, or family responsibilities. 

2. Subsidized Loans Ending

Before the One Big Beautiful Bill Act (OBBBA), students from lower- and middle-income families could qualify for Direct Subsidized Loans, which allowed them to borrow without interest accruing while enrolled at least half-time. This helped reduce the amount repaid after graduation. These loans have been discontinued.

Starting with the 2026-2027 academic year, newly issued federal Direct Student Loans will be unsubsidized, meaning interest will begin accruing immediately upon disbursement, including during college enrollment. If not paid while in school, this interest will be capitalized—added to the loan’s principal balance—at the start of repayment, increasing the total amount owed.

The annual borrowing limits remain unchanged: $5,500 for first-year students, $6,500 for sophomores, and $7,500 for juniors and seniors. However, students who have previously qualified for subsidized loans may need to plan for the potential impact of accruing interest during their college years.

With early financial planning and clear guidance, families can make informed borrowing decisions and better understand how the shift from subsidized to unsubsidized loans may affect their overall repayment timeline. Families navigating these changes don’t have to go it alone—strategic financial planning with the right expert can help preserve options and reduce long-term costs.

3. Parent PLUS Loan Caps Reshape Planning

This is one of the most significant shifts for middle-income families. Previously, parents could borrow up to the full cost of attendance (tuition, fees, room, board, and other expenses) minus any other aid through PLUS federal loans. Under the new law, Parent PLUS Loans are capped at $20,000 per year and $65,000 total per student during their undergraduate program.

These dramatic new limits affect families with students currently in college as well as those just beginning their college journey. Many parents who committed to a school, assuming complete borrowing flexibility, will now reach their maximum as early as the 2026–2027 academic year. 

“This will change things for families who are currently in school or incoming students, who may explore taking a gap year to reassess financial options or reduce borrowing needs to make up the difference.” — High School College Counselor in Florida.

Families with multiple children may also face tough choices. A college that was affordable for an older sibling may now be financially out of reach for a younger child under the new limits.

These shifts make it more important than ever to build a flexible, forward-looking financial plan. Method Learning helps families reevaluate their borrowing strategy, compare funding options, and stay aligned with their college goals, even as the rules change.

4. New Repayment Options (and Fewer Protections)

The previous range of income-driven repayment plans is being replaced with two updated options under the new law. Instead, borrowers now have two options to choose from. One is the new Repayment Assistance Plan (RAP), which calculates payments based on a percentage of income and allows repayment to stretch up to 30 years before forgiveness. The other is a revised standard plan that requires higher monthly payments and offers limited options for deferment or hardship protection.

For some borrowers, the new options may result in higher monthly payments and more limited deferment protections. For our example family, this could alter the parents' willingness to borrow if a parent loses a job or experiences an extended illness.

Navigating repayment terms, understanding future obligations, and planning for the unexpected now play a greater role in college affordability. Our team helps families run personalized loan simulations and compare repayment paths so they can borrow—and repay—with confidence.

Federal Work-Study: No Changes Yet, But Modernization May Be Coming

Although the OBBBA doesn't directly overhaul the Federal Work-Study (FWS) program, a bipartisan effort is underway to modernize it. This initiative aims to shift the program toward work-based learning and off-campus internships. It includes promoting career-aligned roles instead of traditional campus jobs, reducing administrative barriers that limit participation, and adjusting funding structures to support higher-quality learning opportunities.

Although not yet finalized, these changes could impact how students earn money and gain experience during their college years. Method Learning will continue to monitor developments to provide practical guidance to families.

What This Means for Your Family

For families counting on federal loans and grants, it is essential to revisit college funding plans. These updates to federal aid programs highlight the importance of early financial planning and understanding how policy changes may affect your family’s approach. Some families may need to seek private loans, which often have stricter credit requirements. Others may consider using home equity or retirement funds or even reevaluating their school choices to prioritize affordability without sacrificing quality.

What High School Families Can Do Now

Families with high school students should begin forecasting college costs based on the updated loan caps and reduced federal benefits. Key steps include:

• Calculate your new borrowing capacity under the OBBBA limits
• Build a college list that aligns with your academic goals and financial reality
• Prioritize schools with generous merit aid and transparent net price calculators
• Learn how to compare aid offers and make informed appeals

These strategies can help you stay in control, even as the rules change.