February 11, 2026
New limits on student loans in the One Big Beautiful Bill curtail access to postsecondary education financing. Wider use of pay it forward funds could help solve the problem.
The passage of the One Big Beautiful Bill (OBBB) marks a turning point for higher education. Because of new limits on federal student loan borrowing in the bill, many students may now face gaps in the funding they need to pay tuition and other costs of attendance. With colleges and universities facing a number of new financial pressures, including cuts to federal research grants, these borrowing limits will test their ability to provide students facing barriers to economic advancement with opportunities to acquire credentials of value.
At Jobs for the Future (JFF), we believe wider use of pay it forward funds represents a potential solution to this problem.
The law makes some notable changes to the Federal Direct Loan Program. Notably, it puts caps on the amount of money graduate students and the parents of undergraduates are allowed to borrow. Previously, they were able to borrow up to the cost of attendance. The law also permits institutions of higher education to limit or prohibit students from taking out federal student loans for certain programs of study.
A recent JFF analysis of the impact of OBBB’s tighter borrowing limits, which was based on data from the 2019-20 academic year, found that about one in 10 borrowers in each graduating class will experience new gaps in access to financing due to new restrictions on Parent PLUS loans and the elimination of Grad PLUS loans. According to our research, this includes 58,000 undergraduates (3% of borrowers) and 185,000 graduate students (38% of borrowers). In total, these limits will reduce available higher education financing dollars by roughly 12%.
As a result of these lower borrowing limits, some students from middle- and lower-income backgrounds may be priced out of private colleges and universities or out-of-state public undergraduate institutions, as well as high-cost, high-return graduate degrees in fields like law and medicine. Moreover, students who are able to access private loans will likely face high interest rates, and those loans won’t include protections for graduates in low-wage jobs. Nearly 40% of impacted graduate students are likely to be denied private loans entirely unless they have a cosigner.
Part-time students will face additional challenges. Even though they tend to borrow less than full-time students per semester because they take fewer classes, the loan limits they face will be reduced in relation to their enrollment intensity—for example, half-time students can borrow half of the loan limit. This may disproportionately limit access to education for working students, who will now face greater difficulty balancing work and school.
Postsecondary, state, and philanthropic leaders will need to find new ways to ensure that everyone has an opportunity to earn credentials of value, not just students who have strong credit scores or well-qualified cosigners.
The new OBBB borrowing limits, especially as they relate to graduate borrowing, could lead to lower enrollments at a time when institutions of higher education are already facing a projected 10% decline in high school graduates through 2041. That’s on top of financial challenges caused by an expected 15% decline in international student enrollment for the 2025-26 school year, cuts to federal research grants, and constrained state education budgets.
The true scale of the challenge may be even greater because student loan default rates could rise now that loans are once again moving into delinquency and being sent to collections following the conclusion of the pandemic-era pause in payments. A recent American Enterprise Institute analysis found that more than 1,000 colleges had nonpayment rates from student borrowers above 30%. If those loans go into default, it could put the schools at risk of losing all access to federal student aid. To reduce this risk, postsecondary institutions may use new discretion they’ve been granted through the OBBB to lower student borrowing limits and eliminate borrowing for certain programs of study, exacerbating gaps in access to financing for students.
JFF’s North Star goal is that by 2033, 75 million Americans facing barriers to economic advancement will have quality jobs, which JFF defines as roles that provide workers with financial well-being, safe and respectful workplaces, growth and development opportunities, agency and voice, and structure and autonomy. But OBBB borrowing limits may curtail access to the postsecondary education and training people need to prepare for those jobs.
These changes will not only impact students and institutions; they could also have cascading effects that limit the ability of people, businesses, and communities across the country to achieve economic success. State policymakers and leaders of postsecondary institutions and philanthropic organizations should begin exploring creative and financially sustainable solutions that help learners earn credentials of value.
We believe that a promising option is the pay it forward model, which recycles tuition aid back to the institution while ensuring students’ payments are affordable. Under the pay it forward model, aid is provided to a student as either an outcomes-based loan or income share agreement, both of which tie the amount recipients must repay to their future earning levels. With pay it forward programs that are well designed and have strong borrower protections, only students who secure medium- and high-paying jobs have to make monthly payments, and their payments are used to provide aid to incoming students. This approach stretches limited dollars much further than scholarships or grants, and it gives educational institutions an incentive to ensure that their programs lead to high-wage jobs.
Although plenty of states and colleges and universities currently offer financing in the form of fixed-payment loans, only a handful offer outcomes-based options that include protections for people who work in low-wage jobs. The Income-Based Repayment loan from the Rhode Island Student Loan Authority (RISLA) is an example of the latter. Many states have agencies and quasi-public nonprofits like RISLA. All of these, with support from state legislators and other leaders, could develop new outcomes-based loan options.
Additionally, many private mission-driven student financing providers offer outcomes-based loans. College financial aid offices could include these programs and providers on preferred lender lists as part of their efforts to help students find good financing options.
Colleges and universities may also decide to provide outcomes-based loans themselves, and students may see attending a school that offers such financing programs as a better option than enrolling in an institution where private loans or paying out of pocket are the only ways to pay tuition. Purdue University’s Back a Boiler ISA program is a recent example of an institution offering financing with low-wage protections, and recent research suggests that the program successfully provided students with an affordable and accessible financing option that measurably improved completion rates.
Philanthropic organizations can also play a vital role in advancing these innovative options. They can provide funding to support meetings and events and communities of practice that bring together state officials and leaders of educational institutions that are exploring innovative financing for students. They can also provide initial grants or investment capital to launch pay it forward funds. And they can fund research to clarify how outcomes-based financing impacts students, so that more schools and states can adopt and scale best practices.
The OBBB’s new loan limits, combined with demographic and enrollment shifts, create a daunting outlook for colleges and universities, employers seeking workers with postsecondary credentials, and states that rely on thriving workforces to fuel regional economic growth. But these challenges also highlight the urgency—and create an opportunity—for colleges and universities, state policymakers, and other stakeholders to embrace and advance innovative financing solutions.
At JFF, we’re making progress toward our North Star goal in partnership with leaders throughout the work and learning ecosystem. To maintain that momentum, we’re calling on postsecondary, state, and philanthropic leaders to work with us to do the following:
Are you a state or college leader looking for new ways to help students meet their financial aid needs? Contact us to find out how we can work together to create new models that transform education financing: epollack@jff.org, gdesantis@jff.org, or msoetaert@jff.org.
ELEVATE is a national network reimagining postsecondary education to deliver real skills, credentials, and economic opportunity.
The One Big Beautiful Bill Act (OBBBA) introduced sweeping reforms that will undoubtedly trigger a substantial shift in student borrowing to the private lending market, with significant consequences for students, families, and institutions. [1] Most…
The federal budget reconciliation bill will profoundly alter economic opportunities for U.S. workers and learners In this blog, JFF outlines five ways the tax and spending reform bill, signed into law on July 4, 2025, will…