Proposed Budget Would Lower the Amount of Federal Student Loans Available To Some Borrowers

The proposed federal budget bill could reduce the dollar amount of federal student loans available to future college students.

The U.S. House of Representatives advanced its budget bill to the Senate last month. The bill could be reworked before it becomes law, but if adopted, it would cap the amount of loans college students can take out on or after July 1, 2026.

The bill proposes lowering the cap on unsubsidized student loans for college students. It would also eliminate subsidized loans, the only loan type that does not accrue interest while the borrower is in school, and Grad PLUS loans for undergraduates.

Nearly 15% of undergraduate students took out the maximum of subsidized and unsubsidized loans, according to the 2020 National Postsecondary Student Aid Study. These borrowers would likely be forced to finance their education through private loan companies, which do not provide federal loan protections or forgiveness programs, according to advocates.

How Exactly Does The Bill Impact Loan Limits?

Currently, unsubsidized and subsidized loans have a set annual loan limit, which increases each year a student is in school. The proposed bill would vary the maximum annual loan limit for students by calculating the difference between the median cost of college and the Pell Grant the student was awarded that year.

For example, in the 2024-25 school year, the average tuition and fees for a public undergraduate school came to $11,610, according to the College Board. The maximum Pell Grant for that year was $7,395, according to Financial Student Aid. That means that a first-year dependent student who received the maximum Pell Grant award would be offered just $4,215 in loans, compared to the current $5,500 annual limit.

Additionally, the bill would lower the aggregate limits for many students, or the total amount borrowers can take out throughout their degree program.