College Students, Tax Credits, and Student Loans: What’s Changing in 2026 (And What You Should Do Now)

If you’re a college student (or the parent of one), you already know higher education comes with more than just finals and late-night ramen.

It also comes with:

• Tuition bills

• Student loans

• FAFSA confusion

• And tax rules that somehow matter more than anyone tells you

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The good news? The One Big Beautiful Bill Act (OBBBA) includes several important updates that affect education credits, student loan repayment, and how families plan for college.

Let’s break it all down in a way that actually makes sense — with real-life examples you can relate to.

🎓 FAFSA Changes: Aid Will Better Reflect Real Need

Starting with the 2026–27 FAFSA, financial assets counted on the application will more accurately reflect a family’s true ability to pay.

The law also includes exclusions for certain groups, such as:

• Small businesses

• Family farms

• Commercial fishing businesses

Real-life example

If your parents own a small family business or farm, FAFSA may no longer treat those assets the same way it used to — which could increase eligibility for financial aid.

This is a big deal for middle-income families who look “wealthy on paper” but don’t have extra cash lying around.

💸 Education Tax Credits Are Staying — But ID Rules Are Tightening

The OBBBA keeps major education tax benefits in place, including:

• American Opportunity Tax Credit (AOTC)

• Lifetime Learning Credit (LLC)

• Student Loan Interest Deduction

However, there’s one major new requirement:

Starting in 2026, Social Security Numbers Will Be Required

To claim:

• AOTC

• Lifetime Learning Credit

• Student loan debt cancellation exclusions

…you must provide a valid Social Security number for the taxpayer and student.

Why this matters

If a student or parent doesn’t have the correct SSN documentation on file, they could lose access to valuable credits.

Quick Credit Refresher (Because It’s Easy to Forget)

American Opportunity Credit (AOTC)

Best for undergraduates in their first four years.

Worth up to $2,500 per student for tuition, books, and required fees.

Lifetime Learning Credit (LLC)

Helps with graduate school or continuing education.

Worth up to $2,000 per return.

Real-life example

A senior finishing college could still qualify for the AOTC, while a working adult taking certification courses may qualify for the LLC.

📉 Student Loan Interest Deduction Still Matters

Even though student loans are frustrating, the tax code still offers one small break:

You can deduct interest paid on student loans

This deduction remains available under the new law.

Real-life example

If you paid $1,200 in student loan interest last year, you may be able to deduct it even if you don’t itemize — lowering your taxable income.

It’s not huge, but for recent grads starting out, every bit helps.

🏢 Employer Help Is Expanding (Quietly a Big Win)

Section 127 Employer Educational Assistance is getting stronger.

What’s changing?

• Employers can permanently help employees repay student loans

• The $5,250 annual limit will now adjust for inflation

Real-life example

If you work for a company that offers student loan repayment benefits, that assistance could grow over time — and it won’t count as taxable income.

That’s basically free money toward your loans.

📌 Major Student Loan Borrowing Changes Begin July 1, 2026

This is where things get serious.

Federal student loans are changing more than they have in decades.

Parent PLUS Loans Are Being Capped

Currently, Parent PLUS loans can cover almost the full cost of attendance.

Starting July 1, 2026:

• Parents can borrow only $20,000 per year

• Lifetime maximum: $65,000 per student

Real-life example

If your child attends a school costing $50,000 per year, Parent PLUS loans will no longer fill the entire gap.

Families may need more scholarships, payment plans, or private loans.

Grad PLUS Loans Are Being Eliminated

Graduate students have long relied on Grad PLUS loans to cover full costs.

Starting July 1, 2026:

• Grad PLUS loans will no longer be available for new borrowers

Instead:

• Direct Unsubsidized Loans capped at $20,500 per year

• Lifetime cap of $100,000

Professional programs (law, medicine) have higher limits:

• $50,000 per year

• $200,000 lifetime

Bottom line

Graduate students may need private loans sooner than before.

🔄 Repayment Plans Are Being Simplified (But Also Reduced)

The OBBB phases out many current repayment plans like:

• SAVE

• PAYE

• ICR

Starting July 2026, new borrowers will have only two options:

1. Standard Repayment Plan

Fixed payments over 10–25 years.

2. Repayment Assistance Plan (RAP)

Payments capped at 1%–10% of AGI over 30 years, with possible forgiveness afterward.

Borrowers currently on older plans must choose a new option by July 1, 2028, or they’ll be moved automatically.

⏸ Deferment and Forbearance Will Be Harder

Starting July 2027 for new loans:

• Economic hardship deferments are eliminated

• Unemployment deferments are eliminated

• Forbearance options are more limited

Real-life example

If you lose your job after graduation, pausing payments may not be as flexible as it is today.

Planning ahead becomes more important.

📚 529 Plans Are Expanding Too

529 accounts can now be used for more than traditional tuition.

Starting in 2025:

• Books, tutoring, online learning materials qualify

• Credential programs and testing fees qualify

Starting in 2026:

• Up to $20,000 per year can be used for K–12 expenses (up from $10,000)

✅ Key Takeaways for College Students and Families

Here’s what matters most:

✔ Education credits remain, but SSNs will be required

✔ Student loan interest deduction stays in place

✔ Parents and grad students will face stricter borrowing limits

✔ Repayment plans will shrink to two options

✔ Private loans may become more common after 2026

✔ FAFSA will better reflect true family financial need

What You Should Do Now

If you’re starting college soon:

• Borrow carefully before July 2026 changes take effect

If you’re a parent:

• Prepare for Parent PLUS limits and funding gaps

If you’re in graduate school:

• Plan ahead — Grad PLUS is ending for new borrowers

If you already have loans:

• Review repayment options before 2028 transitions

If you want tax savings:

• Track tuition payments and loan interest now

Final Thoughts

College is already expensive. These changes won’t make it cheaper overnight — but understanding them early can prevent financial surprises later.

The families who plan ahead will have the smoothest path through:

• FAFSA

• Tax credits

• Borrowing limits

• Repayment changes

And if you need help making sense of what applies to your situation, we're here to help!