H.R. 1 (Public Law 119-21)

Starting with the 2024–25 award year, the FAFSA Simplification Act required that family farms and family-owned small businesses be counted as assets when an applicant filed the Free Application for Federal Student Aid (FAFSA®) form.

Beginning with the 2026–27 award year, the 2025 federal budget reconciliation law (Public Law 119-21) updates the Student Aid Index (SAI) calculation to exclude the following from current net worth of businesses and farms:

• The net worth of a family-owned business with 100 or fewer full-time (or full-time equivalent) employees.
• The net worth of a farm on which the family resides, in addition to the existing exemption for a family's primary residence.
• The net worth of a commercial fishing business and related expenses, owned and controlled by a family.

These changes are reflected in the 2026–27 FAFSA form and instructions.

• Max Pell - Maximum Pell Grant eligibility is based on tax filing status, adjusted gross income (AGI), state of legal residence, and applicable poverty guidelines.
• Foreign Earned Income Exclusion (FEIE) - Citizens and residents living and working outside the U.S. may have a foreign earned income exclusion (FEIE) to exclude a certain amount of their foreign earnings from U.S. taxable income if they are tax filers.

The 2025 federal budget reconciliation law (Public Law 119-21) changes the definition of AGI specifically for the purpose of the Pell Grant eligibility determination to automatically include foreign income. This means that schools will no longer need to look for ISIRs with reported FEIE nor make these professional judgments beginning with the 2026–27 award year.

When completing the FAFSA, and the applicant or contributor reports foreign income or FEIE on the FAFSA form, the FAFSA Processing System will include it along with the AGI when determining a student’s eligibility for a maximum Pell Grant. Note that the applicant or contributor must still manually report foreign income and FEIE; this information is not imported from the IRS to the FAFSA form.

The 2025 federal budget reconciliation law (Public Law 119-21) modifies the Pell Grant calculation to make a student ineligible for a Pell Grant if the student has an SAI that equals or exceeds twice the amount of the maximum Pell Grant.

Using a maximum Pell Grant amount of $7,395 to illustrate, this means a student will not be eligible if the SAI is $14,790 or more.

Note that all students eligible under the Special Rule (dependents of certain deceased servicemembers and public safety officers) receive a maximum Pell Grant regardless of their calculated Student Aid Index. This provision of the 2025 federal budget reconciliation law (Public Law 119-21) does not affect these students.

With passage of the 2025 federal budget reconciliation law (Public Law 119-21), beginning with the 2026–27 award year, a student may not receive a Pell Grant if she is receiving grant or scholarship aid from non-federal sources that equals or exceeds her cost of attendance. This includes institutional, state, and private grants or scholarships.

Beginning on July 1, 2026, the total amount of all Direct PLUS Loans that one or more parents may borrow on behalf of each dependent student for any academic year of study may not exceed $20,000.

Parents may borrow parent PLUS loans on behalf of more than one dependent student. The $20,000 limit is per student per year.

In addition to this new per-student annual limit, there will be a new aggregate limit. Beginning on July 1, 2026, the total amount of all Direct PLUS Loans that all parents may borrow on behalf of each dependent student for enrollment in an eligible program of study may not exceed $65,000.

Once a borrower has reached the $65,000 limit, she cannot borrow more even if previous loans are repaid, forgiven, cancelled, or discharged.

Currently, a school may offer a Direct PLUS Loan for parents up to the student’s cost of attendance minus any other financial assistance.

For students who are enrolled in a program of study at a school and a parent borrowed a loan on the student's behalf as of June 30, 2026, for the applicable program of study, the provisions above will not apply for the lesser of

• three academic years, or
• the difference between the total length of the program the borrower is enrolled in and the period of the program the borrower has already completed.

Note: Program length means the minimum amount of time in weeks, months, or years that is specified in the school's catalog, marketing materials, or other official publication for a full-time student to complete the requirements for the specific program of study.

When evaluating this exception, two determinations need to be made:

• The student or parent must have borrowed some type of Direct Loan as of June 30, 2026.
• The student borrower or the student of the parent borrower must continue to be enrolled at the same school in the same program of study.

A parent would qualify for the legacy exception (no aggregate or annual borrowing cap) for the current parent PLUS loan limits if they borrowed on behalf of the dependent student by June 30, 2026, or if that student had borrowed Direct Subsidized or Unsubsidized Loans by the cutoff date.

The student on whose behalf the parent is borrowing must remain in the same program of study at the same school.

In addition to annual and aggregate loan limits, the 2025 federal budget reconciliation law (Public Law 119-21) introduced a new lifetime maximum loan limit. The maximum amount of money a student may borrow will be $257,500. This lifetime maximum includes borrowing at both the undergraduate and graduate/professional levels. It also includes Graduate PLUS Loans, but not Parent PLUS Loans.

The lifetime maximum does not change even if funds are repaid, forgiven, canceled, or otherwise discharged. The lifetime maximum loan limit is effective July 1, 2026. However, students who qualify for the interim exception outlined above are not subject to the lifetime maximum loan limit during the exception period.

The 2025 federal budget reconciliation law (Public Law 119-21)adds a new requirement related to annual loan limits. Schools must reduce loans for all students enrolled in a program of study on a less-than-full-time basis during an academic year. Students who are not enrolled full-time will have more limited borrowing ability.

• This reduction in the annual loan limit will be made in direct proportion to the degree to which the student is not enrolled full-time, rounded to the nearest percentage point.