3 Key Student Loan Considerations From The One Big Beautiful Bill
Key Takeaways
This article highlights how Federal student loans differ from private loans. It then provides 3 key considerations for borrowers related to the One Big Beautiful Bill.
Article Overview
Quick insights and key information
7 min read
Estimated completion
investment
Article classification
July 2, 2025
12:52 PM
Forbes
Original publisher
MoneyTaxes3 Key Student Loan Considerations From The One Big Beautiful BillByNathan Goldman, Contributor
Forbes contributors publish independent expert analyses and insights
Nathan Goldman is a tax f
AuthorJul 02, 2025, 12:52pm EDTJul 02, 2025, 04:09pm EDTCollege Graduationgetty While the One Big Beautiful Bill Act heads back to the House for reconciliation and to the Joint Conference Committee to iron out differences between the two chambers’ legislation, one vision that does not appear to be up for significant debate is Federal student loans
Both bills support significant changes to how student loans work
In this article, I discuss what Federal student loans are and vide three key considerations for borrowers as this bill makes its final passage before heading to President Trump’s desk
Federal Student Loans Overview Attending college has been shown to dramatically and positively impact one’s career potential
However, college is expensive in the US, and many spective students do not have the funds available to cover tuition, room, board, and fees
This notion has led many students to take out loans to pay for the costs of attending, with the idea being that it is an investment in the student’s future
For most people looking to borrow money, they can turn to a bank or financial institution to receive these funds, with the mise of repaying the money with interest
However, since student loans do not have collateral associated with them, such as a house or a car, the rates banks vide for these loans tend to be expensive
In turn, in 1965, the Federal government began viding its own student loans, according to New America
Compared to those offered by banks and financial institutions, these loans tend to carry more favorable rates, and some even have additional favorable characteristics
For instance, as highlighted by Saving For College, a website dedicated to advancing the awareness of the costs of higher education, direct subsidized loans known as Stafford loans do not accrue interest until college is
There are also unsubsidized loans, where interest accrues immediately, and PLUS loans, where parents can take out the loans on the student’s behalf
Lastly, the Federal government offers consolidating loans, allowing students to combine several different loans into a single loan, making it much easier to keep track of the loans and repay them
Another key benefit of Federal student loans is that they offer beneficial repayment plans that private loans rarely vide
For example, students can adjust their loan repayment schedule based on their income and family size
These adjustments, based on the amount of discretionary income, have the potential to lower a loan repayment to $0 a month, according to the FAFSA website
The nuances and loopholes in this system, combined with President Biden’s viding student loan forgiveness to over five million borrowers, according to NBC News, have led GOP lawmakers to seek reform of the student loan borrowing system
MORE FOR YOU Student Loans And The One Big Beautiful Bill Act Both the House and the Senate have formed a general consensus around how student loans will be treated, assuming the passage of the One Big Beautiful Bill Act
I highlight three key considerations for loan recipients moving forward: Student Loan Repayment Plans Will Face More Restrictions, And Borrowing Amounts Will Decrease After Passage Of The One Big Beautiful Bill Act According to The Hill, student loan repayment options will dwindle to just two ing the passage of the One Big Beautiful Bill Act
Under this bill, several of the current repayment plan options will begin to be phased out
Instead, new student loans will be given the option to pay back the loans between 10 and 25 years (the duration fluctuates based on the loan balance at graduation), as well as an option to have student loan forgiveness after 30 years of payments
The bill also eliminates payment deferral for borrowers experiencing economic hardship and unemployment, and forbearances would be limited to 9 months (previously 24 months)
In addition to some of these restrictions on having student loans forgiven, the bill would eliminate the federal Graduate PLUS gram
In its place, graduate students can obtain Stafford loans of up to $20,500 per year ($50,000 per year for qualifying law and medical students)
These loans will also have a lifetime cap of $100,000 ($200,000 for law and medical students)
A key change to student loan borrowing is that Parent PLUS loans will be capped at $65,000, according to Forbes
What makes this blematic is that these loans will no longer be eligible for income-driven repayment plans, meaning that the repayment structure for these funds cannot be adjusted or ext
One key concession made in this bill is that defaulted Federal loans can be rehabilitated twice (previously just once), as reported by Forbes
This change allows borrowers two opportunities to fall behind on repayment without facing significant future consequences, such as damage to their credit ratings
Private Student Loans Remain A Credible Option Since the inception of Federal student loans, they have generally been more favorable than private loans
However, it is not necessarily the case that these loan options offer worse rates than Federal student loans
According to Nerd Wallet, the 10 most common private student loan viders all offer rates below those of the Federal government through FAFSA (currently ranging between 6
Furthermore, as the Federal Reserve’s interest rate fluctuates, private lenders tend to be quick to incorporate those rates
Given that the current consensus is that rates will decline in the near future, one might expect private loan rates to suit
Lastly, even if the rates between private loans and Federal loans are competitive, the long-established trope was that Federal loans were dominant due to their more flexible repayment options
As this flexibility declines, the relative disadvantage of having private loans also declines, making these other loans a more viable option
Borrowers Need To Use Education-Related Tax Benefits To Lower Their Borrowing Costs Some students are unaware that there are two key tax credits available for attending college, as well as one key tax deduction, if the student is borrowing money to attend college
These tax benefits can drastically lower the costs of attending college
For the tax credits, the IRS highlights the American Opportunity Tax Credit and the Lifetime Learning Credit
The American Opportunity Tax Credit vides a tax credit for the first $2,000 of qualifying expenses, which are tuition and fees for this credit
It then vides an additional tax credit of up to 25% of the next $2,000 of qualifying expenses
For a student with tuition and fees exceeding $4,000, this will vide a $2,500 tax credit
The credit is restricted to households with an income of under $90,000 (or under $180,000 if married filing jointly), and the expenses cannot include room and board
The Lifetime Learning Credit vides a credit of up to 20% of qualifying expenses, which include tuition, room, board, and fees, up to a maximum of $10,000 in expenses
For a student who has over $10,000 in qualifying expenses, the maximum credit is $2,000
This credit also has similar income restrictions
As highlighted by TurboTax, taxpayers cannot double-dip on these credits
Thus, they must determine which is more beneficial based on the costs of education
Lastly, as these are tax credits, they directly reduce the taxpayer’s tax liability dollar for dollar, meaning that these tax credits can taxpayers thousands of dollars on their tax payments
In terms of the tax deduction, Section 221 of the Internal Revenue Code allows student loan borrowers to deduct up to $2,500 annually in student loan interest paid
The deduction directly lowers the amount of taxable income the taxpayer pays taxes on
If the taxpayer can lower their taxable income by the full $2,500 due to interest paid on student loans, they can hundreds of dollars on their taxes
Editorial StandardsRes & PermissionsLOADING PLAYER.
Related Articles
More insights from FinancialBooklet