Education Planning Jeffrey Gaines Education Planning Jeffrey Gaines

Six Major Changes to Higher Education Funding Under OBBBA

The new law reshapes how families, students, and even employers approach education funding. Here are six of the most significant changes:

1. Expanded Uses for 529 Plans

  • The definition of qualified education expenses is broadening. Families can now use 529 funds for:

  • Homeschooling supplies

  • Certain technology expenses

  • Test fees

  • Other non-tuition costs

In addition, the annual withdrawal limit for K–12 expenses will permanently increase from $10,000 to $20,000 in 2026.

A reminder: 529 plans are tax-advantaged accounts where contributions grow tax-deferred and qualified withdrawals are tax-free.


2. New Limits on Federal Student Loans

OBBBA eliminates the Graduate PLUS Loan program (effective July 1, 2026 for new borrowers) and introduces tighter borrowing caps:

  • Graduate Students: $20,500 annually; $100,000 lifetime.

  • Professional Degree Students (e.g., law, medicine): $50,000 annually; $200,000 lifetime.

  • Parent PLUS Loans: $20,000 annually per dependent; $65,000 lifetime.

  • Overall Lifetime Federal Loan Cap (excluding Parent PLUS): Roughly $257,500.

  • Existing Graduate PLUS borrowers may receive limited grandfathering.


Federal Student Loan Limits

3. Pell Grant Eligibility Changes

Starting July 1, 2026:

  • Pell Grants will cover job training and certificate programs, expanding access for vocational students.

  • Students with full-ride scholarships will no longer qualify for Pell, potentially limiting financial flexibility for some high-achieving, low-income students.


4. Employer Education Contributions Made Permanent

Employers can permanently provide up to $5,250 annually, tax-free, toward an employee’s education expenses or student loan repayments. Beginning in 2026, this limit will be indexed to inflation.


5. ABLE Account Enhancements Made Permanent

ABLE accounts (for individuals with disabilities) will permanently include:

  • Higher annual contribution limits for working beneficiaries without workplace retirement plans.

  • A nonrefundable Saver’s Credit of up to $2,100.


6. Creation of “Trump Accounts”

A new tax-advantaged investment account, similar to a traditional IRA, will be available for children. Key features:

  • Parents can contribute on behalf of their child.

  • Withdrawals allowed beginning at age 18.

  • Funds may be used penalty-free for qualified higher education expenses (among other approved uses).

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