The US Department of Education has announced a new proposal on January 29 aimed at reducing the cost of higher education and simplifying the repayment system for federal student loans.
Last summer, the US Congress passed the “Build Back Better Act” (OBBB), also known as the “Tax Relief for Working Families Act,” which made adjustments to federal student loan programs to lower tuition costs by curbing excessive borrowing, setting loan limits for graduate education programs, and streamlining repayment options. The newly proposed rules are the next step in implementing these reforms.
According to the Department of Education, the proposal “eliminates the Grad PLUS loan program for graduate students, as this program allowed unlimited borrowing and drove up graduate tuition fees. The new rules introduced set reasonable annual and total loan limits for graduate and professional degree programs.”
The percentage of graduate student borrowing within the total federal student loan disbursements by the federal government has been on the rise. These loans also account for a majority of outstanding balances in income-driven repayment plans, further burdening borrowers and taxpayers with student loan debt.
Starting this July, the legislation will establish federal loan limits for new graduate students at $20,500 per year, with a total cap of $100,000. For new professional degree students, the annual limit will be $50,000 and the total limit $200,000.
The Department of Education stated that the new loan limits will incentivize educational institutions to prioritize students’ interests, encourage schools to lower tuition and various fees, making higher education more affordable. These limits also aim to prevent students from facing excessive debt after graduating.
Deputy Secretary of Education Nicholas Kent said, “For years, American families have been concerned about the rising cost of higher education, the long-term (often negative) impact of student loan debt, and whether higher education can truly translate into actual jobs and higher salaries.”
He mentioned that President Trump’s “Tax Relief for Working Families Act” offers a rare opportunity to reduce tuition costs and improve the student loan system, which will better support borrowers.
The Education Department also outlined various benefits of implementing the student loan-related provisions of the “Build Back Better Act” in a proposed legislation notice, including the elimination of accumulation of monthly interest for student borrowers.
By setting limits on federal loans, it will help curb the trend of rising borrowing amounts for graduate students and their parents. Additionally, the new rules will reduce excessive subsidy costs related to loan forgiveness, saving taxpayers “significant funds.”
Meanwhile, the Education Department has recently suspended actions such as tax refund offsets and wage garnishments for defaulting student loan borrowers. Officials stated that this suspension, effective since January 16, will allow time for the student loan repayment system reform under the “Build Back Better Act.” According to the American Enterprise Institute’s analysis of federal student loan data from November last year, approximately 5.5 million student loan borrowers in the US are in default.
In addition, the “Build Back Better Act” has streamlined the previously complex multiple repayment plans into two options: the Standard Repayment Plan and the Income-Driven Repayment Plan.
The Standard Repayment Plan offers fixed repayment terms of 10 to 25 years, giving borrowers with higher debt more time to repay their loans.
The new Income-Driven Repayment Plan, called the “Repayment Assistance Plan,” aims to match student loan repayment amounts with the borrower’s ability to pay, ensuring that low-income borrowers, as long as they continue making payments, will not have unpaid interest capitalized, thereby preventing the loan balance from continually increasing.
The Education Department has issued a “Proposed Legislation Rule Notice” for these changes and opened a 30-day public comment period before analyzing feedback from stakeholders and finalizing the rules.
In a statement released by the American Council on Education (ACE) on September 4, 2025, the council and over forty higher education associations urged the Education Department to postpone the implementation of certain provisions of the “Build Back Better Act” due to concerns about potential changes in student aid programs.
The council stated that the provisions in the act are overly complex, and educational institutions require more time, sufficient staffing, and clear guidance to avoid impacting students.
The group noted, “ACE’s survey of educational institutions indicates concerns from the public that these changes will limit opportunities for graduate and professional degree students, and reduce the enrollment of low-income and first-generation college students.”
The council also criticized the accountability provisions for educational institutions in the act, citing them as “vaguely defined and posing retrospective application risks.”
ACE urged the Education Department and Congress to at least postpone the implementation of the provisions of the “Build Back Better Act” until after July 1, 2027.