New federal regulations are set to fundamentally alter how educational institutions access student loan funding, directly linking it to the post-graduation earning power of their alumni. The Wall Street Journal reported on these final regulations, noting they include "some wiggle room" for schools. These sweeping changes, largely stemming from the One Big Beautiful Bill Act (OBBBA), are scheduled to take effect on July 1, 2026.
Under the new framework, programs will face an "earnings premium test" to maintain eligibility for federal Direct Loans. Undergraduate programs must demonstrate that their graduates' median earnings surpass those of working adults aged 25 to 34 with only a high school diploma. Similarly, graduate programs must ensure their alumni earn more than the average bachelor's degree holder, aiming to hold colleges accountable for student outcomes.
The regulations also introduce significant changes to federal student loan limits, particularly for graduate and professional students. New annual caps will be set at $20,500 for graduate students (with a $100,000 aggregate limit) and $50,000 for professional students (with a $200,000 aggregate limit). Furthermore, the Grad PLUS loan program, a long-standing option for graduate education financing, will be phased out for new borrowers starting July 1, 2026.
In an effort to simplify student loan management, the Department of Education is also streamlining repayment options. Existing Income-Contingent Repayment (ICR) plans will be phased out, replaced by a new Tiered Standard repayment plan and a Repayment Assistance Plan (RAP). This reform aims to reduce complexity and improve the borrower experience, according to the Department.
While the new rules are designed to ensure taxpayer-funded aid supports programs that lead to gainful employment, their implementation has faced challenges. A federal court issued a nationwide preliminary injunction on June 25, 2026, temporarily pausing the Department of Education's stricter definition of a "professional student." This injunction provides some of the "wiggle room" mentioned by The Wall Street Journal, particularly impacting how loan limits are applied to certain programs. Exceptions also exist for students currently enrolled and who have taken out a Direct Loan before July 1, 2026, allowing them to continue under previous terms for a limited period. The Department estimates that over 5% of undergraduate and graduate programs could fail the new earnings rules, raising concerns among some higher education groups about potential impacts on critical workforce fields.
