A sweeping new federal domestic policy bill signed into law by President Donald Trump on July 4 has serious impacts for higher education institutions related to Pell Grant eligibility, federal student loan policies, and institutional accountability metrics. The bill’s provisions impacting colleges and universities largely follow an implementation schedule beginning July 1, 2026.

Below are brief explanations of six core elements of the bill that are especially relevant for higher education institutions: Pell Grants, student aid, student loans, loan repayment plans, endowment-related taxes, and new accountability provisions.

Pell Grants: New Restrictions and a Workforce Track

The bill expands the Pell Grant program to create a new category of "Workforce Pell Grants" for students enrolled in short-term, non-degree workforce programs at accredited institutions beginning July 1, 2026. While this expansion is aimed at increasing access to career-oriented training, the legislation also introduces several restrictive provisions that may reduce eligibility for traditional Pell Grants:

• High Student Aid Index Ineligibility: Students with a student aid index equal to or greater than twice the maximum Pell Grant amount would become ineligible for the grant, regardless of other qualifications.
   
• Grant Aid Offset: Students who receive non-federal grants from states, institutions, or private sources covering the full cost of attendance would be ineligible for a Federal Pell Grant during that award period.
   
• Expanded Definition of Income: Foreign income will be added to adjusted gross income calculations for Pell Grant eligibility beginning in the 2026–2027 award year.

These changes are expected to reduce Pell eligibility for certain families, even as new funding options open for workforce-focused students.

Student Aid: Need Analysis

Beginning with the 2026-2027 award year, the need analysis will exclude certain family-owned assets when determining student need for federal student aid, including family farms on which the family resides, certain family-owned and controlled small businesses with fewer than 100 employees, and family-owned fishing businesses and related expenses.

Student Loans: Limits

The bill provides financial aid administrators with authority to set lower annual loan limits for specific academic programs, even if those limits fall below federal maximums, so long as the limitation is applied consistently across all students in the program.

Additionally, students enrolled less than full-time would face proportionally reduced loan limits, codifying existing Department of Education guidance into law.

The bill eliminates federal subsidized loans for undergraduates and Grad PLUS loans for graduate students starting July 1, 2026. It also caps Parent PLUS loans at $65,000 per student and sets a lifetime borrowing limit of $200,000 across all federal loans for any single borrower.

In addition to imposing annual and aggregate limits for graduate and professional students, the law contains a $257,500 borrowing cap on all federal student loans, excluding borrowed Parent PLUS loan amounts.    

The bill further ends unemployment and economic hardship deferments for Direct Loans issued after July 1, 2027, and caps forbearance for Direct Loans at nine months over two years. 

Repayment Plans: A Significantly Narrowed Landscape

For loans originated on or after July 1, 2026, the Department of Education under the new bill can limit borrowers to only two repayment options: the standard 10-year plan and a new "Repayment Assistance Plan" modeled after income-driven repayment. Borrowers with existing income-contingent loans must transition to one of these options by July 1, 2028.

Importantly, the bill repeals the department’s authority to offer new or modified income-contingent repayment plans and phases out several legacy repayment options. While this simplification may aid clarity for borrowers, it reduces flexibility, particularly for those with complex financial circumstances.

Endowment-Related Taxes

The Tax Cuts and Jobs Act of 2017 initially imposed a 1.4% tax on the net investment income of endowments for colleges and universities with assets of at least $500,000 per student and at least 500 tuition-paying students. Under the bill signed into law on July 4, however, this endowment tax has been expanded and altered. Here’s what the bill says:

• Tiered Tax Rates: The tax on endowments will now be tiered based on the size of the endowment per student.
  • Institutions with an endowment between $500,000 and $750,000 per student will still be taxed at 1.4%. 
     
  • Institutions with an endowment between $750,000 and $2 million per student will face a 4% tax.
     
  • Institutions with endowments exceeding $2 million per student will be taxed at the top rate of 8%. 

Institutions that serve fewer than 3,000 students are exempt from the endowment tax.

Accountability: Programs with Low Earnings Outcomes at Risk

Institutions receiving Title IV aid would be prohibited from using federal funds to support programs whose graduates consistently earn less than comparable high school graduates. The Department of Education would determine "low earning outcomes" based on a program’s median earnings compared to regional median wages. The "earnings test" would not apply to certificate programs. 

Programs failing this metric for at least two of the preceding three years would become ineligible for federal student aid. An institution that loses eligibility may not apply to regain eligibility for two years. 

Key Takeaways for Higher Education Institutions

• Plan for Pell Changes: Institutions should assess how new eligibility thresholds and the workforce grant track may impact current and prospective students.
   
• Review Loan Counseling Practices: With expanded authority to limit borrowing, financial aid offices should review whether to set program-specific caps aligned with student outcomes.
   
• Evaluate Program Earnings Data: Institutions should proactively analyze graduate earnings data to identify programs at risk under the new accountability rules.
   
• Prepare for Reduced Repayment Flexibility: Institutions supporting borrowers through financial literacy or loan repayment programs should update materials to reflect the narrower repayment plan landscape.
   
• Coordinate Institutional Aid Strategy: Review how institutional grants may interact with Pell Grant eligibility under the new rules, especially in the context of full cost-of-attendance coverage.

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