As the dust begins to settle around the Reconciliation Bill (“Big Beautiful Bill”), institutions are working diligently to translate sweeping legislative language into practical, operational plans. Part 1 of our article outlined the major changes that institutions must plan for by July 2026 (See our initial analysis in Part 1).
In this follow-up, we’re diving deeper into additional sections of Subtitle B – Loan Limits that raise important questions and demand further strategic thinking. We’ll also highlight areas that remain uncertain and share our interpretation of how they may affect your institution’s Title IV administration and compliance efforts, especially when it comes to awarding Federal Direct Loans. We’ll continue to update you as more guidance becomes available.
Section 7: Additional Rules Regarding Annual Loan Limits
This section introduces nuanced rules around student borrowing when enrolled less than full-time, as well as institutional discretion to set lower loan limits by program.
Less Than Full-Time Enrollment
What We Know:
- Loan eligibility will be reduced proportionally based on a student’s enrollment intensity. This applies across all federal student loan programs, including graduate and professional degrees. Loan amounts will be rounded to the nearest whole percentage point, and a reduction schedule will be published by the Secretary.
- Current regulations state that “when prorating a loan amount for a student enrolled in a program of study with less than a full academic year remaining, the school need not recalculate the amount of the loan if the number of hours for which an eligible student is enrolled changes after the school originates the loan.” (34 CFR 685.301(a)(5)(ii))
Unknowns and Concerns:
- Will the proportion be based on standard enrollment statuses (e.g., 50% for half-time) or actual credits attempted as with the current undergraduate loan proration requirements and Pell enrollment intensity calculations? (We are waiting in anticipation for the published schedule by the Secretary!)
- Will 34 CFR 685.301(a)(5)(ii) be amended in future negotiated rulemaking to include the proration of loans for less than full-time enrollment or not? As of right now, we have the following concerns:
- Will institutions need to perform recalculations of Federal Direct Loans (FDLs) for enrollment changes as they do for Pell Grants?
- Will institutions be able to set FDL recalculation dates (like Pell Recalc Dates), or will recalculation be required with every schedule change?
- How will this interact with Return to Title IV (R2T4) calculations?
M&A Takeaways: The reference to rounding to the nearest whole percentage point suggests a model more aligned with current loan proration rules and Pell enrollment intensity rather than standard status tiers. Whether the CFR noted above would be amended to include these new loan prorations or not, the additional requirement to prorate FDL will significantly increase the administrative burden on an institution.
Institutional Discretion to Set Program Loan Limits
What We Know:
- Starting July 1, 2026, institutions may choose to set lower loan limits for specific academic programs, applicable to both Federal Direct Loans and Parent PLUS Loans. These limits must be applied consistently across all students within a program and aim to encourage responsible borrowing.
Unknowns and Questions:
- Can institutions set limits by academic year, total program, loan type (Subsidized vs. Unsubsidized), or for Parent PLUS separately?
- Will existing regulations be amended to accommodate this discretion?
- If a student is less than full-time and enrolled in a program with institutional loan caps, will the cap or the federal maximum be the starting point for calculating proportional reductions?
M&A Interpretation: Institutions may choose to implement this option, but it is not a requirement. This appears to be a clear move toward reducing overall loan burdens. Institutions should take a conservative approach by assuming the institutional cap will serve as the baseline before any proportional reduction is applied for less-than-full-time enrollment.
Section 8: Interim Exception for Certain Students
This exception allows some students to remain under the previous loan limits if they meet specific conditions.
What We Know:
- The student must be enrolled in a program and have received (or had taken on their behalf) a loan for that program as of June 30, 2026.
- The exception applies for the lesser of:
- Three academic years, OR
- The remaining time needed to complete the program (as defined by the published full-time length minus the portion already completed).
Unknowns and Questions:
- Will the institution or the Department of Education be responsible for tracking these exceptions?
- What happens if a student changes programs within the same institution (e.g., moves from an associate’s to a bachelor’s)? Does the exception follow them?
M&A Interpretation: This exception may offer some flexibility but will likely add layers of complexity to loan eligibility tracking and subsequent financial aid packages. We recommend institutions begin building the infrastructure now to identify and monitor eligible students.
Next Steps for Financial Aid Leaders
With the elimination of Graduate PLUS loans and Parent PLUS loan caps already confirmed, institutions are facing a new financial aid landscape. Meanwhile, the increased emphasis on accountability, responsible borrowing, and career-aligned outcomes suggests a permanent shift in federal policy priorities.
We anticipate further clarification from the Department of Education in the coming months, particularly regarding:
- Operational details for enrollment-based loan reductions
- FAQs and guidance on institutional loan limits
- Exception tracking responsibilities and audit implications
Ways Your Institution Can Begin to Prepare Today:
- Begin modeling loan eligibility scenarios for part-time students under both federal and institutional limits.
- Develop policy language and governance procedures for applying institutional loan caps.
- Build internal processes to identify and track students eligible for the interim exception.
- Stay current with ED guidance and be ready to adapt quickly.
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At McClintock & Associates, we’re committed to helping you prepare for every phase of implementation—even when the rules are still being written. Sign-up for our newsletter to stay up to date or schedule a consultation with our experts to model your impacts, develop strategies, and implement solutions.
