Reconciliation Bill: What You Need to Know

By MorraLee Keller, Senior Consultant, and Catherine Brown, Senior Director, Policy and Advocacy 

Reading Time: Seven minutes

The Budget Reconciliation Bill was signed on Independence Day earlier this month. Now, we have to sort through the implications of the bill for the students we serve and the colleges they are enrolled in. The National College Attainment Network’s (NCAN) Beltway Buzz webinar series, an iteration of which was offered yesterday, gave our members the chance to learn more about the major impact of the bill and get answers to some of their questions. Most of the higher educatin provisions in the bill are slated to take effect on July 1, 2026. These changes will impact the 2026-27 Free Application for Federal Student Aid (FAFSA) and academic year. 

We do not know how all changes will be implemented – or in what order the US Department of Education (ED) will address them – but there are some things you can count on: 

• FAFSA is slated to begin beta testing in the next couple weeks  
  and will open on October 1, 2025, thanks to that functional area being adequately staffed 
• Pell Grants will be fully funded at $7,395, and the reconciliation bill provides funding to address the program’s funding shortfall, ensuring that maximum award is fully funded for the next two academic years 
• Subsidized loans for undergraduate students will continue at current levels 
• PLUS loans will continue at current levels 
• TRIO, GEARUP, and AmeriCorps will be funded for the coming year 
• International student visas are facing higher scrutiny and could reduce revenue to institutions as their enrollment levels drop 
• Postsecondary students may experience a loss of scholarships that included race as a factor, based on ED's interpretation of the U.S. Supreme Court's decision about consideration of race in admissions 
• Research funding cuts and other grant terminations may impact college budgets, leading to less availability of financial aid and other student support, and finally, 
• FAFSA completion rates for the Class of 2025 were much higher than last year, which we believe should lead to increased postsecondary enrollment this fall. 

NCAN will monitor these areas in the lead up to the next academic year. We have concerns about the aggressive implementation timeline in the statute, and ED’s capacity to thoughtfully meet all the mandates. At this point, we do not have answers to questions about the following issues, among others: 

• Pell Grant awards and the maximum award level for 2026-27 
• TRIO, GEARUP, and AmeriCorps funding in Fiscal Year (FY) 26 
• SEOG and work-study funding in FY26 

These questions will be answered as Congress works its way through the FY26 federal budget. The President’s budget proposal eliminates TRIO, GEARUP, AmeriCorps, and SEOG, and greatly reduces work-study funding. However, the President’s budget proposal is never enacted precisely as proposed, and Congress still holds the “power of the purse.” 

To implement the requirements in the reconciliation bill, ED will have to issue clear guidance and, in many cases, go through a negotiated rulemaking process. Loan repayment changes, implementation of the new Workforce Pell program, and the new accountability framework, or earnings test, are likely to go through negotiated rulemaking, which could delay their implementation beyond July of 2026. We will closely monitor these issues as ED begins making changes: 

• The asset exemption for family farms and small businesses will be reinstated. This exemption category has been expanded to include family commercial fishing businesses. We should see this question adapted on the 2026-27 FAFSA. 
• Students that receive grants and scholarships from non-federal sources that exceed their full cost of attendance will not be eligible to receive a Pell Grant though otherwise eligible. While the universe of students receiving non-federal grant aid covering their full cost of attendance is small, ED will need to provide guidance to colleges to explain this requirement. At this point, there is no timeline for when guidance will be provided.  
• The GRAD PLUS loan program is being eliminated. Current borrowers will be able to continue borrowing under this program for three years or until their program is completed. 
• PLUS loan borrowing limits will change to only allow parents to borrow up to $20,000 per year per child with an aggregate of $65,000 per child. 
  Loan repayment programs will be reduced to one “regular” loan payment program and one income-driven payment program which will always require at least a $10 monthly payment. ED has announced that students enrolled in the SAVE program will have to begin paying interest, starting on August 1, 2025. ED will need to work out the many details of how to transfer borrowers from SAVE and other existing programs into the new repayment programs, once they are created.  This topic will likely be a top priority for the Trump Administration.  
• Student loans will now need to be prorated based on the students’ enrollment level. ED will need to provide guidance on the credit hour enrollment categories. An example will likely be that a student who is enrolled half-time (six-to-eight credit hours per term) will only be eligible to receive half of their loan maximum for that term. We expect this to have a significant impact on part-time students, especially at community colleges. 
• The reconciliation bill will establish a Workforce Pell Grant program for programs between 150-600 clock hours that run between eight and 15 weeks in length. The programs have to lead to a portable, stackable credential. The program must be approved by the governor of the state and aligned with in-demand jobs. The program has to have already existed for at least one year. Students cannot receive a regular Pell Grant and workforce Pell at the same time. Some types of course work will not be eligible for funding-remedial, correspondence, English language learning, and study abroad. Unaccredited institutions will not be able to participate. Establishing a new program such as this will also require the negotiated rulemaking process to be utilized. 
• Individual programs at institutions are going to be held to new accountability requirements. Under the statute, the average annual earnings of program graduates four years out from graduation must exceed those of high school graduates between the ages of 25 and 34 within the state (or nation if the college or university enrolls more than 50% of students from out of state). Average earnings of graduate programs will have to exceed those of the same occupation in the state. Programs that do not meet the earnings standard in two out of three consecutive years will not be able to award student loans to students in those programs. They will still be able to award Pell and campus-based aid. This accountability framework differs from the current Gainful Employment (GE) framework, which requires that students earn enough to repay their student loans. This new framework is focused solely on earnings. ED will need to decide whether to enforce both accountability requirements or suspend the GE regulations in lieu of the earnings data. We suspect programs that typically produce low-wage earners, such as education and social work, are most in danger of losing access to the federal loan. 
• While not directly related to higher education, the reconciliation bill makes cuts to federal safety net programs that will have a direct impact on state budgets.  
  • In Medicaid expansion states, the bill includes strict requirements that people regularly prove that they are employed or going to school half time (looking for work does not count) to receive Medicaid, and limits states’ ability to tax health care providers to fund Medicaid. Medicaid is administered differently across states, and this law will be implemented differently, so it is impossible to project how much funding states will lose. We believe that each state will have to decide how they will implement the new law in their state and determine how it might impact their annual budgets. 
  • States will also be responsible for at least 5% of SNAP benefits. Those with high payment error rates will have to pay up to 25% of the cost of benefits. 

Read More: 

• Controversial Budget Bill Protects Pell but Sharply Cuts Other Supports for Low-Income Americans
• Senate Reconciliation Contains Quirky Pell Eligibility Modification 
• Senate Heeds Call to Protect Pell