Amendments to the Higher Education Act Made by P.L. 119-21, the FY2025 Budget Reconciliation Law

Title IV of the Higher Education Act (HEA) authorizes the primary federal financial assistance programs to aid students and their families in gaining access to and financing a postsecondary education. These programs include the William D. Ford Federal Direct Loan (Direct Loan) program and the Pell Grant program. On July 4, 2025, P.L. 119-21, the FY2025 budget reconciliation law, was enacted. The law addresses a broad array of federal laws and programs, and Title VIII specifically amends several aspects of HEA Title IV. The Congressional Budget Office (CBO) estimates that P.L. 119-21’s amendments to the HEA will result in net mandatory savings of about $284 billion over the FY2025-FY2034 period. The majority of these savings are primarily derived from changes to the Direct Loan program, with amendments to the student loan repayment plans accounting for the bulk of the savings. P.L. 119-21 makes the following changes to the HEA Title IV programs: It updates the mix and availability of Direct Loans by (1) eliminating Direct PLUS Loans to graduate and professional students, (2) amending borrowing limits for Direct Unsubsidized Loans to graduate and professional students and for Direct PLUS Loans to parents of dependent undergraduate students, and (3) instituting new lifetime maximum aggregate limits for all student loan borrowers and on the amount that may be borrowed on behalf of a dependent undergraduate student by their parents. In general, these changes are applicable to individuals who, as of June 30, 2026, are not enrolled in a program of study for which they received (or on whose behalf their parents borrowed) a Direct Loan. For borrowers of new Direct Loans on or after July 1, 2026, it authorizes the availability of only two repayment plans: a new standard repayment plan with fixed monthly payments, and a new income-driven repayment (IDR) plan, known as the Repayment Assistance Plan (RAP). For qualifying borrowers with existing loans, all currently available repayment plants are to remain available through June 30, 2028. After that date, the only IDR plans available to such borrowers will be the two current income-based repayment plans and the RAP, with no changes to availability of fixed repayment plans or alternative repayment plans. It amends other terms and conditions of Direct Loans, including eliminating economic hardship and unemployment deferments for loans made on or after July 1, 2027; permitting federal student loan borrowers to rehabilitate their defaulted loans twice, effective July 1, 2027; and delaying the effective date of regulations promulgated in 2022 relating to closed school discharge and borrower defense to repayment for all loans originated before July 1, 2035. Effective July 1, 2026, it makes targeted changes to the need analysis system used to determine a student’s eligibility for need-based HEA Title IV programs, such as the Pell Grant. It newly authorizes so-called Workforce Pell Grants for otherwise Pell-eligible students enrolled in short-term undergraduate workforce programs (to be effective July 1, 2026) and provides additional funds in FY2026 for the Pell Grant program to help address an estimated funding shortfall. It adds a statutory earnings test applicable to programs of study that participate in the Direct Loan program to the current array of HEA Title IV accountability measures. The new earnings test is to compare the earnings of program completers against those of individuals without a credential of the same level. Beginning July 1, 2026, institutions of higher education must provide assurances to the U.S. Department of Education that applicable programs of study will meet the new earnings test.