New FAFSA rules: Loan caps, Pell Grants, and asset limits explained

By Corey Buhay | Published on November 13, 2025

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If you’ve just gotten used to the new Free Application for Federal Student Aid (FAFSA), get ready for another round of updates. Starting in 2026, the FAFSA will change—again.

On July 4, 2025, Donald Trump signed the One Big Beautiful Bill Act (OBBB) into law, kicking off major updates to the federal student loan system. This comes on top of changes made to the FAFSA in 2024. While much of the form will remain the same from 2025 to 2026, students will see a few major tweaks to the Pell Grant eligibility formula, federal loan limits, and asset reporting rules. Here’s what student borrowers need to know.

What is OBBB?

The OBBB is a 2025 congressional act introduced by the Trump Administration to curb government spending and lock in some taxation rules that were previously set to expire. It also affects student aid funding. For student borrowers, the impacts could be big. The OBBB will change the way some students are evaluated for federal aid—and will change the way the Department of Education can distribute that aid. Here’s a deeper look at a few of the major changes.

Student Aid Index (SAI) updates: new FAFSA asset exclusions

In 2024, the Department of Education launched a new formula for calculating a family’s financial need. This new formula was called the FAFSA Student Aid Index (SAI). It uses a number of criteria—from your family size to your parents’ income—to give you a score. The lower your score, the more financial aid you qualify for. The greater the score, the less you qualify for.

The new FAFSA will keep the SAI formula basically unchanged, but will add a few new asset exclusions. Starting with the 2026-2027 award year, you won’t need to report the net worth of some types of family-owned assets, including:

• Family-owned businesses with fewer than 100 full-time employees
• Family farms that you or your relatives reside on
• Family-owned fishing businesses

That means more families—especially those in rural communities—could now qualify for more financial aid. It also makes it easier to fill out the FAFSA for small business owners.

Changes to Pell Grant eligibility

The new legislation will also change the way the Department of Education calculates students’ Pell Grant eligibility in 2026 and beyond. Before, students who earned full-ride scholarships could still apply for Pell Grant funds to use toward room, board, and other non-tuition expenses. Now, those students will no longer qualify.

The same is true of students with certain SAI scores. If your family’s score is at least twice the maximum Pell Grant award, you won’t be eligible. (That SAI threshold is currently set at $14,790.) There are, however, a few exceptions. If you’re the child of a deceased servicemember or public safety officer, that threshold won’t apply to you; you can still apply, regardless of your SAI.

The other big Pell Grant change has to do with foreign income. Previously, you didn’t need to count foreign earned income as a part of your adjusted gross annual income (AGI) as far as the Pell Grant application was concerned. Now, that income does need to be reported—which could raise some families’ AGI above the acceptable threshold for grant consideration.

An end to the Grad PLUS loan program

The OBBB also phases out the Grad PLUS loan program, which will stop accepting new applicants on July 1, 2026. Students who have previously taken out Grad PLUS loans will be grandfathered into the program and most students will be able to continue borrowing until their program ends. Graduate students will still be able to apply for Direct Unsubsidized Loans up to the current available loan limit.

New federal student loan limits

Starting in 2026, student borrowers will face new federal loan limits. These limits put a cap on how much you can borrow from the federal government, both on an annual basis and over the course of your lifetime. Here are the new federal student loan caps for 2026:

• Graduate Students: $20,500 per year, with a lifetime limit of $100,000.
• Medical and Law Students: $50,000 per year, with a lifetime limit of $200,000.
• Parent PLUS Loans: $20,000 per year, with a lifetime limit of $65,000 per dependent student
• Universal lifetime cap: $257,500 over a given student’s lifetime

What these changes mean for you

The OBBB FAFSA update could affect how much financial aid you qualify for. To improve your odds of a high award, make sure you understand the changes early so you can budget and strategize accordingly. Here are a few tips for families ahead of the 2026/2027 award year:

• Understand your SAI early. Calculate your SAI online using the federal Student Aid Estimator tool to learn how much aid you might qualify for.
• Strategize around exclusions. If you think you qualify for an asset or income exclusion, talk to your family about using it to your advantage. It can also be helpful to talk to a financial aid counselor, who may have more detailed advice on leveraging these exclusions to maximize your aid.
• Check your loan usage. If you’ve taken out student loans before, calculate the total amount you’ve borrowed thus far. Make sure you’re well within the new lifetime loan limits, and find ways to curb borrowing if you’re approaching your cap.
• Take out Grad PLUS loans ASAP. If you’re a grad student, apply for federal aid before the Grad PLUS loan phase-out on July 1, 2026 to get grandfathered into the system.
• Re-examine your choice of school. If your SAI is higher than expected and your top-choice school is pricey, consider more affordable options.
• Apply for grants and scholarships. For many students, the new borrowing caps may make it impossible to borrow enough federal loans to cover the full cost of college. If you can, apply for grants, scholarships, work study, and other forms of non-loan aid.
• Look into private student loans. When you’ve maxed out grants and scholarships, you can always turn to private loans. Most private lenders offer affordable interest rates and don’t place strict caps on how much you can borrow toward education costs.

Plan ahead with Earnest

The 2026/27 FAFSA changes could affect your family’s eligibility for federal student aid—especially if you have a family business or foreign income, or if you were hoping to apply for a Pell Grant. While the changes won’t affect everyone, planning ahead can help you maximize your financial aid award and avoid surprises.