It's Not Loan Limits or Accountability or Pell, It's the Combination

Three upcoming changes from OBBBA with strategically-important impacts

Author

Phil Hill
September 17, 2025

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Last week I gave a presentation at the HolonIQ Back to School Summit focused on two changes from the One Big Beautiful Bill Act (OBBBA, or OB3 for the cool kids). Both changes were based on academic programs and new limits or oversight. There are new lifetime loan limits, particularly $100k for grad programs and $200k for professional programs while eliminating unlimited Grad PLUS loans, that in combination with the Do No Harm institutional accountability will dramatically change how colleges and universities manage their program portfolios. Both focus on economic returns of academic programs, forcing much more explicit choices to be made by students and institutions.

Based on a subsequent conversation, I would add a third - Pell Grant eligibility restrictions for students with full aid through other sources (grants, scholarships, state aid).

These three OBBBA changes in combination will have major implications on how students choose academic programs and how institutions manage the finances of academic programs, starting in 2026. The time for college and university leadership to understand these implications start strategic reviews is now.

It’s a Law

One of the criticisms that I have had during the Biden Administration was that the Department of Education (ED) would take a lot of license with existing statute (from Congress passing laws) and craft regulations that went far beyond the legal intent. If you want that, pass a law was the refrain.

Before getting to the three issues in more detail, it is important to recognize that OBBBA is a law, the changes are in statute, and ED has to follow these details in any rulemaking. And the changes were bipartisan in nature, particularly the Do No Harm portion. For those with criticisms of the new law, this is a case of be careful what you wish for.

What is relevant is that ED has its hands tied by the law - a lot of the changes requested in the public comments setting up negotiated rulemaking are simply not feasible. There will be loan limits with no Grad PLUS program, there will be earnings premium-based program accountability, and there will be new restrictions on Pell Grant eligibility.

Change 1: Loan Limits

OBBBA replaces open-ended Grad PLUS borrowing with capped federal loan limits by degree type (e.g., bachelor’s, master’s, professional/doctoral), shifting away from “up to cost of attendance” financing. Graduate students will no longer have access to nearly-unlimited loans; they’ll be limited to the new annual/aggregate caps—pushing high-cost programs towards either tuition changes or pushing students to cover gaps with savings, institutional aid, or private credit.

These changes have been summarized by AEI.

Change 2: Do No Harm Accountability

The second change is Do No Harm (institutional accountability), a program-level safeguard that conditions Title IV access on the concept that graduates shouldn’t be financially worse off after completing a program. ED evaluates outcomes over multiple years—most centrally an earnings premium benchmarked to state or U.S. comparators, alongside repayment/default screens. Programs that fail the metrics in two of the last three years face loss of Title IV eligibility, with required disclosures, notice/appeal, and re-entry pathways. The aim is to surface programs with poor economic returns, protect students, and make the underlying data and methods transparent.

While estimates from the most recent ED College Scorecard data show just 4% of undergraduate degree programs failing the new limits, some caveats are in order.

  • The data are for academic cohorts that started a full decade ago, and the data do not account for Covid or gen AI changes, all of which make the future earnings metric more difficult to meet (early career job prospects are getting worse, not better).

  • Graduate programs will have even worse data, but the formulas are so complex I won’t have a simple estimate for another week or two.

  • The program risks vary by discipline and major, as seen below. Some majors (based on CIP4 codes) will have more than 10% of programs failing.

Change 3: Pell Grant Eligibility Limits

After the presentation, I had an email conversation with Frank Dooley, Chancellor Emeritus and Professor at Purdue University Global based on a seemingly minor change to Pell Grant eligibility.

OBBBA will limit or deny Pell eligibility when a student’s tuition and required fees are fully covered by other sources, such as employer sponsorships, state “last-dollar” grants, or third-party payments, so federal grant funds aren’t layered on top of a fully paid bill. In practice, aid offices would have to verify “fully funded” status at origination and monitor changes mid-term, since shifts in employer or state payments could trigger recalculations. The change focuses Pell on students with unmet direct educational costs, but it also raises packaging and timing challenges for institutions.

Financial Aid Administrators (FAAs) raised several concerns during the public comment period.

  • Determining when a student is fully funded will add complexity. FAAs will need to accurately track all non-federal funding, ensure that those scholarships/grants really cover the student's full cost of attendance (COA), and coordinate with institutional, state, and private scholarship programs. Mistakes or misclassifications could lead to students being incorrectly denied Pell or being required to return funds.

  • Many students have multiple sources of funding: institutional scholarships, private scholarships, state grants, sometimes employer support. FAAs will need better systems to collect and verify this information. If a scholarship is awarded after initial packaging, that could trigger retroactive ineligibility or adjustments.

  • Because scholarship/grant award timing often trails or overlaps with initial packaging, FAAs are concerned about changing awards mid-process, pushing back disbursements, or needing to issue adjustments. This could increase staff time, require system upgrades, and potentially delay student notifications.

Put Them Together

Put these three OBBBA changes together, and a picture emerges about financial aid packaging and planning becoming not just a job for FAAs to manage, but a strategic planning role for top university administrators. As Dooley described by email (sharing with his permission):

Many leaders don't fully grasp the inner workings of financial aid packaging because it has always been seen as a back-office compliance function. However, the proposed changes turn this into a critical risk management and strategic resource allocation concern for the entire institution. It's a new area where leaders must make sure to protect their institutions from future financial liabilities. This is particularly important because in an era of widespread budget cutting across higher education, it is easy to see financial aid offices caught up in across-the-board budget cuts. This new reality makes FA packaging an area where investment is required, not reductions.

The new regulations require a level of scrutiny that many institutions, especially smaller ones, are not equipped for. With the Department of Education facing its own staffing challenges, a lack of clear guidance could lead to significant financial liability for schools. Leaders need to understand these processes to ensure their institutions are prepared.

This is a great summary of the new challenges faced by higher education institutions based on the new law.

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