National Association of Schools of Art and Design
Federal Advisory: Higher Education Provisions in the
2025 Budget Reconciliation Bill (H.R.1.)
We hope this finds you well.
NASAD monitors closely and on an ongoing basis education policy at the federal level and provides information to NASAD accredited institutions and constituents regarding current developments and changing conditions. This memorandum is offered as part of ongoing efforts in this area.
Background
Congress has recently passed, and the President has subsequently signed into law, H.R.1., more commonly known as the 2025 budget reconciliation bill or by its official name of the “One Big Beautiful Bill Act.” This bill was passed through the reconciliation process, which requires only simple majorities to pass, but that all provisions have a direct impact on mandatory governmental spending. Moving legislation through this process often means that the legislation is passed quickly, and therefore, without time for in-depth policy discussions, hearings, and debate.
H.R.1. includes provisions which amend the Higher Education Act of 1965 and will directly impact the field of higher education. The majority of the changes will become effective as of July 1, 2026. The text of the legislation can be found here. Please ensure that the version labelled “Enrolled Bill” is being viewed, as this is the official version of the bill which incorporates all amendments and is provided by the United States Government Publishing Office. The higher education provisions are included in Title VIII of the bill. While not the main focus of this notice, select tax provisions regarding the endowment tax and deductions for charitable giving were included in Title VII.
The information offered below is informative in nature and while thorough, is not intended to be an exhaustive account of the nuances of all provisions. As always, NASAD suggests a review of the text of the bill. All text in quotations below is taken directly from the bill. There will likely be future information and guidance regarding implementation of the law provided by the United States Department of Education (USDE). NASAD recommends that institutions and institutional representatives remain attentive to the USDE website and Federal Student Aid (FSA) Knowledge Center for updates. Please feel free to share this information with others on your campus who may hold responsibility and/or interest in this regard.
While specific questions are best directed to USDE and/or the appropriate office on your campus, the NASAD National Office staff remains available should the need for assistance arise.
Accountability Measures
H.R.1. codifies into law accountability measures similar to those seen in recent regulations on the topic of gainful employment, in that the measure seeks to hold institutions accountable through loss of eligibility to apply federal funding to programs which do not meet certain defined metrics regarding earnings of graduates. Under the new law, all undergraduate, graduate, graduate professional (i.e., medicine, law, etc.) and graduate certificate programs are subject to an earnings test which aims to identify “low-earning outcome programs,” and based upon the results of this test over a period of three years, remove eligibility to apply federal education dollars to such programs. Under this measure:
- Median earnings of program graduates in the workforce who are not enrolled in any institution of higher education are captured 4 years post-graduation utilizing data from the Bureau of the Census.
- If the median earnings of program graduates are less than those of a working adult without the same credential, the program fails the accountability measure.
- If a program fails twice within a three-year period, that program will lose its eligibility for federal funds.
- If a program fails once within a three-year period, the institution must inform enrolled students that the program is at risk of losing its eligibility for federal funding.
A “working adult” for the purpose of this accountability measure is defined in the law as a person aged 25-34, not enrolled in an institution of higher education, and holding as their highest level of education a credential at a lower level than that being measured. If measuring a baccalaureate degree, the highest level of education is a high school diploma or its recognized equivalent; if measuring a graduate or professional degree, the highest level of education is a baccalaureate degree. There is an important distinction in the law regarding the working adults against whom program graduates are measured:
- When measuring undergraduate programs, earnings are measured against those of working adults without attention to the field of work of the working adults in relation to the program graduates’ field of study.
- When measuring graduate degrees, the earnings of graduates are compared against the earnings of working adults in the graduates’ field of study as determined by the two-digit CIP code of the program being measured.
Allowances are made in the law for programs with small cohorts of graduates. Institutions are able to appeal the results of the accountability measure prior to a program’s loss of eligibility for federal funding. A program which has lost eligibility for federal funding can reapply after two years have passed.
Student Loans
Termination of Graduate PLUS Loans
Effective July 1, 2026, Graduate PLUS Loans will be terminated. Current borrowers participating in the PLUS loan program remain eligible for PLUS loans provided that (a) they are enrolled in an institution of higher education eligible to receive federal lending dollars, (b) have received a PLUS loan, and (c) have three or fewer years remaining in their program, or a lesser period of time as determined by the length of the program and the requirements left to complete.
Loan Limits
Effective July 1, 2026, the annual Parent PLUS limit for parent borrowers on behalf of a student will be $20,000 per dependent student. Borrowing in the Parent PLUS loan program will be capped at $65,000 per dependent student regardless of any loans that may have previously been repaid, forgiven, cancelled, or discharged. The same “grandfathering” provision for current Graduate PLUS borrowers outlined above also applies to the Parent PLUS program.
For all students, beginning July 1, 2026, the maximum aggregate lifetime borrowing limit will be set at $257,500 “without regard to any amounts repaid, forgiven, canceled, or otherwise discharged” on any federal student loan.
At the graduate level, the law makes an important distinction which impacts newly-defined borrowing limits for graduate programs. A “graduate student” is defined as “a student enrolled in a program of study that awards a graduate credential (other than a professional degree) upon completion of the program.” A “professional student” is defined as “a student enrolled in a program of study that awards a professional degree, as defined under section 668.2 of title 34, Code of Federal Regulations (as in effect on the date of enactment of this paragraph), upon completion of the program.” Currently, the definition of “professional degree” in the Code of Federal regulations at 34 CFR 668.2 reads in part: “a degree that signifies both completion of the academic requirements for beginning practice in a given profession and a level of professional skill beyond that normally required for a bachelor’s degree. Professional licensure is also generally required.” Examples are offered in the definition and encompass graduate medical, law, and theology degrees.
H.R.1. enacts an annual borrowing limit of $20,500 for graduate students and $50,000 for professional students. Aggregate lifetime borrowing limits will be set at $100,000 and $200,000 respectively. If a professional student was previously a graduate student, the total borrowed as a graduate student is deducted from the $200,000 limit for professional students.
Under the new law, students enrolled on a less than full-time basis are permitted to borrow in proportion to their enrollment level. As well, beginning July 1, 2026, institutions may limit the amount of federal loans to students or parents on behalf of a student provided that the limit is applied consistently to all students enrolled in a particular program of study.
PELL Grants
Expanding PELL eligibility to short-term workforce programs is a topic which has gained popularity in recent years. A key provision of H.R.1. is authorization of workforce PELL grants beginning on July 1, 2026. PELL grants will be able to be used for programs that are (a) between 150 and 600 clock hours and between 8 and 15 weeks in length, (b) offered by an accredited institution, and (c) aligned with workforce needs as defined in the law.
Around $10.5 billion in 2026 mandatory funding is stipulated in the law to address the expected PELL shortfall.
Loan Repayment
H.R.1 makes substantive changes to student loan repayment options. Chief among these changes is the creation of a new income-based repayment plan which will require minimum payments of at least $10 per month for a period of 30 years. At the same time, the bill removes the Secretary of Education’s authority to create income-contingent repayment plans and terminates all existing loan repayment plans as of July 1, 2026 in favor of a repayment system with a total of two plans: 1) the new income-based repayment plan mentioned above, and 2) the standard repayment plan with repayment terms from 10 to 25 years based on the borrower’s student loan balance.
Students with loans originating prior to July 1, 2026 may continue to use the existing standard, graduated, and extended repayment plans. Students must choose a repayment plan before July 1, 2028 and must repay under the selected plan after July 1, 2028. For students enrolled in Public Service Loan Forgiveness, the bill requires enrollment in the new income-based repayment plan.
Regulations
Borrower Defense to Repayment
The bill pushes the effective date of the 2022 Borrower Defense to Repayment Final Rule to July 1, 2035. The version of these regulations which took effect on July 1, 2020 is “restored and revived” and in effect at this time.
Closed School Discharge
The bill pushes the effective date of the 2022 Closed School Discharge Final Rule to July 1, 2035. As a result, the portions of title 34 of the Code of Federal Regulations “amended by the [2022] final regulations…shall be in effect as if the amendments made by such final regulations had not been made.”
Endowment Tax
H.R.1. amends the endowment tax rate for certain private colleges and universities to a scaled 1.4%, 4%, and 8% rate dependent on an institution’s endowment per student. The rates below apply only to institutions with 3,000 or more tuition paying students:
- 4% tax rate for institutions with an endowment of $500,000 to less than $750,000 per student.
- 4% tax rate for institutions with an endowment of $750,000 to less than $2 million per student.
- 8% tax rate for institutions with an endowment of more than $2 million per student.
Staying Informed
It is reasonable to expect that USDE will initiate negotiated rulemaking sessions to implement this legislation. It is safe to assume that pertinent information will be published by USDE and FSA as implementation is initiated. In addition to information published on the USDE website and in the FSA Knowledge Center, announcements and other information regarding negotiated rulemaking and regulation of H.R.1. will be published in the Federal Register at the appropriate times. NASAD encourages all institutions and institutional representatives to remain aware of ongoing developments. NASAD will do the same and will communicate information as necessary and appropriate.
We offer our best wishes for the remainder of the summer and remain available for assistance as institutions begin the new academic year.
Thank you.
KPM:sc