The New Student Loan Landscape: How the One Big Beautiful Bill Act Impacts Your Employees

Key takeaways:

• The passage of H.R. 1 will transform how millions of Americans pay for college and repay student debt. New policies go into effect as soon as July 2026, and include borrowing limits for certain federal student loans, fewer affordable repayment plan options, and the elimination of key borrower safety nets.
• Effective immediately, H.R.1 secures permanent Section 127 tax exemption for employer’s contributions to workers’ student loan repayment. 
• New changes in the student loan landscape will send financial stress skyrocketing — at home, and in the workplace. A smart financial wellness benefit offering that delivers the support employees urgently need is essential for organizational success. 

The federal student loan system is entering its most significant transformation in decades. The One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025, has introduced provisions that will fundamentally change how millions of Americans pay for college and repay student debt — and in doing so, spur unprecedented challenges and uncertainty for student loan borrowers and their families.

As these policies are implemented, borrowers’ need for support will only increase. And considering the direct link between employees’ personal financial stress and workplace outcomes, employers have a critical role to play in helping borrowers navigate the changes instigated by H.R. 1. 

Here’s what HR leaders need to know about how the One Big Beautiful Bill Act will impact employees, and how they can support their workforce through this turning point and beyond.

Key student loan policy changes introduced by the One Big Beautiful Bill Act

Borrowing limits for key federal student loan programs

Effective July 1, 2026, borrowing caps will be placed on certain types of federal student loans:

• Parent PLUS Loans: $20,000 annual limit, $65,000 lifetime maximum per student
• Graduate-level Stafford Loans: $20,500 annual limit, $100,000 lifetime maximum
• Professional-level Stafford Loans: $50,000 annual limit, $200,000 lifetime maximum

Repayment plan overhaul

This bill introduces a new income-driven repayment (IDR) plan, dubbed the Repayment Assistance Plan (RAP), and initiates the phased elimination of existing IDR plans, including SAVE, ICR, and PAYE.

RAP entails several key differences compared to the other IDR plans it replaces. Under RAP:

• Monthly payments are calculated as between 1% and 10% of a borrower’s adjusted gross income, and no income is excluded from the calculation. Other IDR plans calculate monthly payments as between 5% to 10% of a borrower’s discretionary income, and exempt income equal to as much as 225% of the federal poverty guideline from their payment calculations. 
• The lowest possible monthly payment obligation is $10, whereas other IDR plans offer a $0 monthly payment obligation for borrowers with no or low income.
• Remaining debt is forgiven after 30 years of payments, whereas other IDR plans forgive remaining debt after 10-25 years of payments.
• Parent PLUS loans disbursed on or after July 1, 2026 will not be eligible for RAP. Currently, borrowers can consolidate their Parent PLUS loans in order to access IDR options.

RAP is intended to replace existing IDR Plans, including SAVE, ICR, and PAYE, which will be phased out between July 2026 and July 2028. The impact of these changes depends on the borrower’s current repayment plan and their loans’ disbursement date:

• Borrowers on standard repayment and Income-Based Repayment (IBR) can keep their current plans and payment structure; they are effectively grandfathered into these plans.
• Borrowers on SAVE, ICR, and PAYE must transition to either RAP, Income-Based Repayment (IBR) plan, or the standard repayment plan between July 2026 and July 2028.  Borrowers who opt to switch to IBR will be transitioned to RAP after July 2028. 
• Borrowers whose loans are disbursed on or after July 1, 2026 will only be eligible for RAP or the standard repayment plan; none of the current IDR plans will be available.

Less support for borrowers facing hardship

Effective July 1, 2027, the legislation eliminates unemployment deferment and economic hardship deferment, which currently allow borrowers to pause payments during financial difficulties. 

Also effective July 1, 2027, the bill limits discretionary forbearance, which can pause a borrower’s payment obligation in the event of extenuating circumstances, to a maximum of 9 months within a 24-month period.  Currently, borrowers can be approved for up to 12 months of discretionary forbearance at a time, with a 36 month total maximum. 

More limits on access to PSLF

Monthly payments under RAP will still be able to qualify for credit towards Public Service Loan Forgiveness for eligible borrowers. However, Parent PLUS loans disbursed on or after July 1, 2026 will not be eligible for PSLF. 

Permanent Section 127 tax exemption for employer student loan contributions

Effective immediately, the One Big Beautiful Bill Act grants permanent IRS Section 127 tax-exempt status for employers’ contributions towards employees’ student loan repayment. This tax exemption, which was initially granted through the CARES Act of 2020 and set to expire after December 31, 2025, enables employers to contribute up to $5,250 annually toward employee student loans on a tax-free basis (with inflation adjustments set to begin in 2027) — and paves the way for organizations to plan for and invest in student loan contribution programs with confidence.   

The impact of H.R. 1 on employees

The changes brought forth by H.R. 1 will dramatically impact borrower outcomes at every stage of the federal student loan lifecycle. 

New borrowing caps have the potential to push students toward private lending options, which often entail less favorable terms and fewer protections, and could block many from pursuing their educational goals in the first place. 

As millions of borrowers in repayment transition to RAP, many are likely to face higher monthly student loan bills compared to other IDR options. For example, a single borrower with no dependents who earns $40,000 would be required to pay an estimated $40 per month under SAVE; under RAP, their estimated monthly payment is $133. 

The shift to less flexible repayment options and a reduced safety net also comes on the heels of another crisis point for borrowers facing economic hardship. Record numbers of borrowers have fallen behind on their monthly payments, with millions already in or soon to enter default — at which point they may face involuntary collections via employer-facilitated wage garnishment, a practice the Department of Education recently resumed after a more than five-year hiatus. 

Now more than ever, smart financial wellness benefits can make a difference.

It’s well-documented that financial stress in employees’ personal lives directly impacts workplace outcomes like productivity, engagement, and retention. 

With the One Big Beautiful Bill Act positioned to fundamentally transform how Americans pay for college and repay student debt, workers will soon face new uncertainty as they navigate the changes brought about by this legislation. This challenge will undoubtedly lead to increased financial stress for millions — the effects of which are sure to be felt in the workplace.

Our recommended strategy for HR leaders

With Candidly, employers can offer meaningful benefits that help employees navigate this moment — and beyond — while driving forward their business objectives. 

As employers seek to support their workforce amid this transformation in the student loan landscape, our recommended strategies include:

• Respond quickly. Employees are in urgent need of support. Our Core platform and Coaching service can be implemented within days to weeks — not months —  to quickly deliver the self-serve resources and trusted guidance employees need now. 
• Implement a phased program design. After offering resources that provide immediate relief, evaluate strategies for up-leveling your program with offerings that help employees move beyond student debt and into long-term financial security, like our Student Loan Retirement Match solution, or help cover the cost of going back to school with our Tuition Reimbursement solution.
• Invest in tax-exempt repayment contributions. H.R. 1 has secured permanent Section 127 tax exemption for up to $5,250 in annual contributions towards employees’ student loan repayment. Our Student Loan Employer Contribution solution makes facilitating this offering easy by supporting flexible program designs and a streamlined administrative experience. 

Want to learn more? Reach out to our team at sales@getcandidly.com.

This article was prepared by Candidly for general informational and educational purposes only and does not constitute legal, financial, or tax advice. While the information provided herein relates to legislation informally referred to as the “One Big Beautiful Bill,” it is not intended to substitute for legal interpretation or individualized guidance. Readers should consult their own legal, compliance, or professional advisors before taking any action based on the content of this article. The views expressed are those of the company at the time of publication and are subject to change.