The One Big Beautiful Bill Act: What Does it Mean for Education?

Section 70411 of the Act amends the Internal Revenue Code to establish a new federal tax credit designed to incentivize private donations to scholarship granting organizations (SGOs). These SGOs are defined as nonprofit entities that use donated funds to award educational scholarships to eligible elementary and secondary students to assist with tuition and related educational expenses at qualifying schools. The credit takes effect in 2027.

Under this provision, individual taxpayers in participating states can claim a nonrefundable dollar-for-dollar federal income tax credit equal to the amount of their contribution to a certified SGO, up to $1,700 annually, that can be carried over for up to five years. SGOs must operate in states that formally opt into the federal program and provide scholarships to a minimum of 10 eligible students annually. SGOs may not set aside scholarship funds for any particular student but must give priority to prior recipients and siblings. Eligibility is broadly defined; students from households earning less than 300% of the area median income who are eligible for public school enrollment qualify, and scholarship funds are not considered income to the students or their parents. This structure may lead to uneven implementation and limited support for economically vulnerable students.

Potential Implementation Challenges:

• The statute is vague in key areas, with no uniform process for scholarship disbursement, little federal oversight of SGOs, and a high likelihood of inconsistent state-level implementation.

• There are no explicit civil rights requirements and no federal data collection on outcomes or demographics, severely limiting accountability.

Under this provision, individual taxpayers in participating states can claim a nonrefundable dollar-for-dollar federal income tax credit equal to the amount of their contribution to a certified SGO, up to $1,700 annually. SGOs must operate in states that formally opt into the federal program and provide scholarships to a minimum of 10 eligible students annually. SGOs may not set aside scholarship funds for any particular student but must give priority to prior recipients and siblings. Eligibility is broadly defined; students from households earning less than 300% of the area median income who are eligible for public school enrollment may qualify. This structure may lead to uneven implementation and limited support for the students most at risk.

Potential Implementation Challenges:

• The statute is vague in key areas, with no uniform process for scholarship disbursement, little federal oversight of SGOs, and a high likelihood of inconsistent state-level implementation.

• There are no explicit civil rights requirements and no federal data collection on outcomes or demographics, severely limiting accountability.

• The income threshold may result in the exclusion of the most economically vulnerable students, while privileging repeat or higher-income participants.

Sections 70412 through 70414 of the Act expands access to federal education-related tax benefits. These provisions are aimed at easing student debt burdens and providing more flexibility for families saving for education. However, the benefits primarily assist individuals in higher-wage employment or those already able to save using 529 plans.

The employer student loan repayment exclusion updates the tax code to allow employer-paid student loan assistance to remain tax-exempt and adjusts the $5,250 limit for cost-of-living increases. Employers may deduct education assistance, including payments toward student loans.

The law also immediately expands 529 plan coverage in the K-12 context beyond tuition to include instructional materials, tutoring and online resources, dual enrollment programs, and educational therapy for students with disabilities. Beginning in 2026, withdrawals for these uses are capped at $20,000. Additionally, 529 funds may now be used for postsecondary credentialing exams, licensing, apprenticeships, and certification materials.

Potential Implementation Challenges:

• While these expanded tax advantages offer new opportunities for some families and employers, their benefits may be less accessible to individuals who are unemployed, self-employed, or working in the gig economy.

• Some terms remain undefined, which could lead to inconsistent interpretation, and the statute does not currently include provisions for oversight or quality assurance of eligible programs.Sections 70412 through 70414 of the Act expands access to federal education-related tax benefits. These provisions are aimed at easing student debt burdens and providing more flexibility for families saving for education. However, the benefits primarily assist individuals in higher-wage employment or those already able to save using 529 plans.

  The employer student loan repayment exclusion updates the tax code to allow employer-paid student loan assistance to remain tax-exempt and adjusts the $5,250 limit for cost-of-living increases. Employers may deduct education assistance, including payments toward student loans.

  The law also immediately expands 529 plan coverage in the K-12 context beyond tuition to include instructional materials, tutoring and online resources, dual enrollment programs, and educational therapy for students with disabilities. Beginning in 2026, withdrawals for these uses are capped at $20,000. Additionally, 529 funds may now be used for postsecondary credentialing exams, licensing, apprenticeships, and certification materials.

  Potential Implementation Challenges:

  • While these expanded tax advantages offer new opportunities for some families and employers, their benefits may be less accessible to individuals who are unemployed, self-employed, or working in the gig economy.

  • Some terms remain undefined, which could lead to inconsistent interpretation, and the statute does not currently include provisions for oversight or quality assurance of eligible programs.

Section 60005 of the Act rescinds approximately $12 billion in previously appropriated federal funds that were designated to address air pollution in public school buildings. These funds were intended to support improvements to ventilation and HVAC systems, with a focus on enhancing indoor air quality. The rescission may affect schools with aging infrastructure or existing environmental health concerns, particularly those that had anticipated using the funding for facility upgrades.

Potential Implementation Challenges:

• May impact federal and state efforts to promote safe and healthy learning environments.

• Raises equity considerations as schools serving low-income or minority populations are the only ones affected by the loss of funding.

• Potential implications for compliance with existing state or local environmental health and safety requirements.

Section 83002 of the Act introduces Workforce Pell, allowing grants to fund short-term credentialing and workforce programs. This expansion, which goes into effect on July 1, 2026, for award year 2026-2027, could benefit community college students and help fill critical gaps in the workforce, although program implementation will be crucial.

Potential Implementation Challenges:

• Workforce Pell is set to be implemented in one year, leaving the Department and participating programs little time to ensure a smooth rollout.

• Students seeking Workforce Pell may be susceptible to aggressively marketed low-quality programs seeking to take advantage of the new funding stream.

Section 81001 of the Act terminates subsidized graduate loans and caps overall borrowing: $100,000 for graduate students and $200,000 for professional students. Grad PLUS loans will be phased out beginning in the 2026–2027 year, and eliminated entirely by 2029–2030. Parent PLUS loans will be capped at $65,000 per student.

Repayment changes in section 82001 include elimination of several current income-driven plans (PAYE, SAVE, ICR), consolidation into a single Repayment Assistance Plan, and restructuring of loan terms. Borrowers entering repayment after July 1, 2027, will face shorter deferment and forbearance options under section 82002, losing current hardship and unemployment protections.

Potential Implementation Challenges:

• Parent PLUS loans are disproportionately used by minority families, who may be pushed toward private lending markets.

• Many medical and law programs have costs that far exceed the Act’s new loan limits. Caps on graduate and professional program loans may deter low-income students from enrolling in advanced degree programs or push them toward private lending markets.

• The consolidation of income-driven loan repayment plans will be a time- and resource-intensive process made more difficult by continuing litigation and staffing cuts to Department offices implementing those changes.

• Despite broader efforts to close the U.S. Department of Education, the Act includes $1 billion in funding to support the administration of federal student loans. With regional FSA offices closed and staffing shortages growing, the path forward for this funding and the agency’s role in loan management is unclear.

The Public Service Loan Forgiveness program is only included in section 82004 of the Act to include requirements for on-time payments under the new Repayment Assistance Program, but borrowers should remain aware of likely changes to who counts as a “qualifying employer” for purposes of loan forgiveness. Following the President’s March 7 Executive Order 142305, Restoring Public Service Loan Forgiveness, the Department is considering excluding organizations deemed to have a “substantial illegal purpose,” including aiding undocumented immigrants or discriminatory practices. On July 2, 2025, the Department engaged in a negotiated rulemaking session that did not result in consensus, but did produce a set of widely supported suggestions for 15 substantive changes to the regulatory language. A Notice of Proposed Rulemaking is expected to follow.

Meanwhile, the section 85002 delays implementation of new regulations on borrower defense and closed school discharge until July 1, 2035, and reverts to older regulatory frameworks.

Potential Implementation Challenges:

• Despite broader efforts to close the U.S. Department of Education, section 82005 of the Act includes $1 billion in funding to support the administration of federal student loans. With regional FSA offices closed and staffing shortages growing, the path forward for this funding and the agency’s role in loan management is unclear.

Section 70119 of the Act extends the federal income tax exclusion for student loan amounts discharged due to death or permanent disability. This continuation ensures that borrowers and their families are not burdened with additional tax liability following a qualifying discharge. However, the underlying discharge process remains complex and unevenly implemented.

Potential Implementation Challenges:

• Coordination between loan servicers, borrowers, and the IRS continues to result in inconsistent application.

• Schools and servicers have federal reporting obligations that may trigger privacy and compliance concerns, particularly related to disability status.

• State tax treatment of discharged loans remains uncertain, potentially undermining the relief intended by the federal provision.

Beginning in 2026, section 70606 of the Act introduces a new requirement that parents or guardians provide a valid Social Security number (SSN) in order to claim the American Opportunity or Lifetime Learning tax credits. This change may significantly impact immigrant and mixed-status families, limiting access to benefits that were previously more broadly available.

Potential Implementation Challenges:

• The requirement may disproportionately affect eligible students whose parents are undocumented or lack SSNs, raising potential civil rights concerns.

• There are no transition provisions or exemptions, increasing the risk that families may forgo tax credits they would otherwise receive.

• Schools and colleges may face pressure to explain these changes without clear authority or resources to assist.

Section 70415 of the Act introduces a tiered excise tax on the investment income of wealthy private institutions—those with at least 3,000 students and endowments exceeding $500,000 per student. The maximum tax rate rises to 8%, up from the current, across-the-board, rate of 1.4%. Earlier proposals to include smaller schools or exempt religious institutions were removed. Institutions rely on endowments to fund scholarships, salaries, maintenance, and research. These new taxes may reduce institutional flexibility and financial resilience.

Potential Implementation Challenges:

• Some institutions may be newly subject to the tax and unprepared for related compliance obligations.

Section 70416 of the Act expands the applicability of the federal excise tax from the current application of the corporate tax rate on a college or university’s five highest-paid employees, to application of the corporate tax rate on all employees of tax-exempt entities, including private colleges, universities, and their affiliated nonprofits, who receive more than $1 million in compensation. This change will take effect in 2026.

Potential Implementation Challenges:

• IRS enforcement may scrutinize deferred compensation, bonuses, and severance agreements.

• Limited guidance on how the rules apply to affiliated entities or individuals with multiple roles could create uncertainty and risk.

Section 84001 of the Act establishes a baseline earnings threshold for institutional eligibility to offer federal student loans. Undergraduate programs must show that the majority of graduates earn more than the median high school graduate in their state; graduate programs must surpass the median earnings of bachelor’s degree holders in the same field.

While designed to promote accountability, the measure’s narrow earnings focus may discourage institutions from enrolling students pursuing public service careers or those from high-risk populations. It also does not apply to Pell Grant eligibility, and certificate programs with poor outcomes remain unaddressed.

Potential Implementation Challenges:

• The measure relies on data from multiple federal agencies, including the Bureau of Labor Statistics and the Department of Education—agencies currently facing staff shortages and regional office closures.

• Institutions are accustomed to receiving implementation guidance through the Federal Student Aid network, which is now significantly reduced.

• Offices who review the quality and veracity of IPEDS data received from institutions and programs have been removed from the Department, leaving institutions vulnerable to inconsistencies relating to processing data and making accountability findings, and undermining the effectiveness of the program.