Paying for Education Under the OBBBA

The passage of the One Big Beautiful Bill Act (OBBBA) has introduced reforms to the U.S. education and tax systems. For families navigating college planning and financial aid, the law presents a mix of expanded opportunities and new limitations. In this post, we will focus on how to save wisely for education under the OBBBA.

OBBBA Impacts on 529 Plans

• K–12 Benefit: The annual withdrawal cap from 529 Plans has doubled from $10,000 to $20,000 per student, starting in tax year 2026.
• Books and supplies: Specific for K-12 students, 529 plan funds may now be used for books and supplies required for participation in a class.
• Student Loan repayments: You can apply up to $10,000 from a 529 toward loan repayment and up to an additional $10,000 for each of the beneficiary’s siblings.
• Professional training and credentials: 529 plan funds used for registered apprenticeship programs are now considered a qualified expense. These include costs for skilled trades, vocational training, professional licenses and certifications.

OBBA Impacts on Financial Aid

Starting July 1, 2026, the One Big Beautiful Bill Act (OBBBA) imposes strict federal borrowing limits, affecting both students and schools. Key changes include:

• Parent PLUS loan program previously allowed families to borrow up to the full cost of attendance, minus any financial aid. Now, Parent PLUS loans are restricted to $20,000 per year for each child, with a lifetime borrowing cap of $65,000 per student.
• Grad PLUS loans previously allowed graduate and professional students to borrow up to the full cost of attendance once they hit the ceiling on unsubsidized federal loans, but under the new law
  • Graduate student loans are capped at $20,500 per year, with a $100,000 lifetime cap.
  • Professional Students (e.g., law, medicine, dentistry) are capped at $50,000 per year, with a maximum lifetime limit of $200,000.
• For professional and graduate students, the new overall lifetime cap for all federal loans will be $257,500.

The implementation of new federal borrowing limits will have a significant effect on some graduate students, particularly those enrolled in high-cost programs such as medicine, law, and engineering who relied on federal loans. These students may find that federal loan caps are insufficient to cover the full cost of their education, leading them to rely on private lenders for additional funding.
It is important to note that private lenders typically charge higher interest rates and provide fewer repayment protections compared to federal loans. As a result, borrowers should prioritize saving early through 529 plans which could help mitigate future reliance on private loans.

Planning Tips

• Start early to maximize compound growth and take advantage of expanded 529 benefits.
• Consider Roth rollovers if your child does not use all the funds for education.
• Grandparent Incentives! Unrelated to education, seniors aged 65+ gain a $6,000 tax deduction through the OBBBA. This could help them contribute more to their grandchildren’s education. Grandparents can open or contribute to a 529 education savings plan.
• California’s ScholarShare 529 plan has a maximum account balance limit of $529,000 per beneficiary. However, there is no minimum contribution allowing flexibility and making it accessible for families across all income levels.

With fewer federal student loans available, saving early and wisely is more important than ever. For families navigating the costs of education, reassessing their financial plans can make a meaningful difference. If you’re feeling unsure about where to start, please feel free to reach out.

*Although federal law permits tax-free withdrawals from 529 plans for K–12 tuition expenses, California taxpayers face additional state-level taxes on these withdrawals. Specifically, such withdrawals are subject to California state income tax and an extra 2.5% California tax. Furthermore, California does not provide a state income tax deduction for contributions made to 529 plans, meaning families do not receive any state tax benefits for saving or spending in this way.

The information provided herein is for educational purposes only, and should not be construed as advice, including, but not limited to tax, legal, insurance, investment, or retirement advice. For your specific planning needs, please seek the advice of Integris Wealth Management, your tax accountant, attorney, insurance agent, or other professional as appropriate. Investing involves the risk of loss.