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U.S. Department of Education Finalizes Landmark Rule to Lower College Costs and Simplify Student Loan Repayment

Today, the U.S. Department of Education (the Department) released a final rule that will lower the cost of college and make student loan repayment easier, an important step toward implementing historic reforms contained in President Trump’s Working Families Tax Cuts Act (the Act).

Beginning this summer, the Department will implement commonsense loan limits on how much students and parents can borrow, simplify the current patchwork of repayment options, establish a new, congressionally authorized income-driven repayment plan, and enforce other protections for students, families, borrowers, and taxpayers.  

The Department’s final rule will carry out the Act's sweeping higher education reforms to support student borrowers and improve the health of the federal student lending system.  

For decades, students and families have been undermined by the rising cost of higher education and oftentimes negative return on borrowers’ educational investment. These challenges, along with the Biden Administration’s mismanagement, resulted in student loan debt ballooning to nearly $1.7 trillion, with less than 40 percent of borrowers in active repayment and nearly 25 percent in default.  

“The Trump Administration is focused on putting students and taxpayers first, which is why we are implementing durable policies to make higher education more affordable,” said Under Secretary of Education Nicholas Kent. “President Trump’s Working Families Tax Cuts Act addresses longstanding challenges in higher education and federal student lending, including exorbitant tuition costs, unchecked borrowing, and a confusing maze of repayment options that too often leave borrowers with higher balances despite making payments. This final rule will help ensure students can access higher education without racking up excessive loan debt, offer repayment options that better serve borrowers, and force institutions to reduce costs.” 

After decades of failed policies that have lined the pockets of colleges and universities, enabled overborrowing, and created a confusing repayment system, the need for reform is clear:  

  • Graduate students hold over a third of all federal student loan debt, yet 40% of master’s degree programs have a negative return on investment.  

The final rule includes four key provisions:  

  1. Eliminates the Grad PLUS program to help curb tuition growth by ending unlimited borrowing; 
  1. Establishes reasonable annual and aggregate loan limits for graduate and professional students; 
  1. Allows institutions to establish their own programmatic loan caps that match the true value of their academic programs, preventing their students from overborrowing in programs with lower earnings or higher default rates; and 
  1. Simplifies student loan repayment by creating a new Tiered Standard plan and establishing a new income-driven repayment plan known as the Repayment Assistance Plan, which eliminates negative amortization. 

Collectively, these changes will ensure students continue to have access to federal student loans while helping prevent borrowers from taking on unmanageable debt levels they may never be able to repay. The final rule also saves American taxpayers $409 billion by simplifying student loan repayment, eliminating excessive, illegal loan forgiveness schemes, and reducing student loan debt by $224 billion by protecting students from overborrowing. 

To learn more about the final rule package, please see here.  

Background:

On July 4, 2025, President Trump signed the Working Families Tax Cuts Act into law, which made much-needed changes to higher education. The Department held a public hearing on August 7, 2025, to receive public feedback on implementing the law and later convened two negotiated rulemaking committees to address the changes made by the Act. 

The Reimagining and Improving Student Education (RISE) Committee met for nine days of negotiations in September, October, and November 2025. The RISE Committee included a range of affected stakeholders, including higher education institutions, student loan borrowers, and organizations representing taxpayers. The Committee addressed the student loan provisions contained in the Act and reached consensus on the final vote, including the definitions of “graduate student” and “professional student.”  

Following negotiated rulemaking, the Department published a Notice of Proposed Rulemaking in the Federal Register on January 30, 2026, and invited public comment. The Department received over 80,000 comments, which are summarized and addressed within the final rule.  

The majority of the rule’s provisions will go into effect on July 1, 2026, with provisions related to rehabilitation, deferment, and forbearances effective July 1, 2027, and the sunsetting of certain repayment plans effective July 1, 2028. 

The final rule will be on public inspection in the Federal Register today and published on May 1, 2026. A copy of the regulations can be found here.  

Grok Assessment

The U.S. student loan system imposes a massive burden driven by decades of rapid tuition inflation, easy credit (especially unlimited Grad PLUS loans), and interest accrual that often outpaces repayment for many borrowers. The April 30, 2026, Department of Education press release outlines reforms aimed at addressing these issues through borrowing limits, simplified repayment, and cost-control measures.

Scale of the Burden (as of early-mid 2026)

  • Total outstanding debt: Approximately $1.83–1.84 trillion (federal ~90–92%, private the rest). This exceeds auto loans and credit card debt combined.
  • Borrowers: ~42.8 million with federal loans; average federal balance ~$39,500 (overall average including private can reach ~$43,000).
  • Growth trends: Debt ballooned 343% since 2005. Recent growth resumed after a brief pause-era dip, though net prices (after aid) have stabilized somewhat at many public schools.

Many borrowers (especially those with incomplete degrees or lower-ROI fields) struggle: ~25% historically in default pre-reforms, and large shares delay homeownership, family formation, etc.

High Tuition Costs as the Root Driver

College costs have far outpaced general inflation and wages for decades:

  • Tuition/fees rose much faster than other household expenses over 40 years.
  • 2025-26 averages: Public 4-year in-state ~$11,950; private nonprofit ~$45,000; plus room/board pushing total cost of attendance higher.
  • Many programs deliver poor return on investment (ROI). Roughly 28% of bachelor's programs (and higher for some master's) show negative or low ROI after costs and risk of non-completion. Fields like psychology, social work, visual arts, education, and liberal arts often underperform, while engineering, computer science, and certain professional degrees fare better.

Easy federal borrowing (no hard credit checks for most undergrad loans, unlimited Grad PLUS until the new rules) enabled schools to raise prices with less pushback from students/families. The new rule eliminates Grad PLUS and adds caps to curb this.

Interest Rates

Current federal rates (for loans disbursed July 1, 2025–June 30, 2026):

  • Undergraduate Direct: 6.39%
  • Graduate Unsubsidized: 7.94%
  • PLUS (parents/grad): 8.94%

Private rates vary widely (e.g., 3–18% fixed/variable, often credit-based; recent 10-year averages around 8%).

These are elevated compared to pandemic lows (~2.75–5% range) but align with broader rate environments (tied to Treasury yields). Compounding matters most when payments don't cover interest—leading to negative amortization on older plans. Many borrowers effectively pay far more over time due to extended terms or forbearance/deferment. The new Repayment Assistance Plan (RAP) aims to eliminate negative amortization.

Rates are burdensome relative to starting salaries in many fields (especially vs. wage growth), but federal loans remain cheaper and more flexible than most private alternatives or credit cards. The bigger issue is principal size from high tuition + overborrowing, not rates alone.

Recent and Upcoming Changes (2026 Rule)

The final rule (effective mostly July 1, 2026) from the Working Families Tax Cuts Act targets root causes:

  • Borrowing limits: Ends unlimited Grad PLUS; sets reasonable caps for grad/professional students; allows schools to cap by program (based on value/earnings/default rates).
  • Repayment simplification: New Tiered Standard plan + RAP (income-driven, no negative amortization).
  • Projected impact: Reduces overborrowing, saves taxpayers ~$409B, cuts debt by ~$224B long-term, and pressures schools to control costs.

This shifts from prior forgiveness-heavy approaches (e.g., SAVE plan transitions, which faced legal/cost challenges). Borrowers in transition may see higher payments but clearer paths.

Overall Assessment

The burden is real and structural: High upfront costs + interest on large principals + variable earnings outcomes create hardship for a significant minority (especially non-completers or low-ROI fields). It delays wealth-building for many while benefiting others substantially. Reforms like the 2026 rule address incentives for overborrowing and tuition inflation better than forgiveness alone, which treated symptoms.

Practical takeaways for borrowers:

  • Prioritize high-ROI fields/schools; maximize grants/scholarships/work.
  • Borrow minimally; consider community college transfers or in-state options.
  • Use income-driven plans wisely, but understand new rules.
  • Refinance private/federal (where eligible) if rates drop and you have stable income.

Long-term, stronger accountability on institutions and better consumer information on program outcomes will help more than any single rule. The system is improving but still carries heavy weight for many.

Sources