Federal student loan reforms enacted last summer in the Big Beautiful Bill took effect Wednesday, simplifying the repayment system and making other changes to keep Americans from accumulating too much student loan debt. Instead of the student loan forgiveness promised and attempted by President Biden, Republicans in Congress hoped to make productive reforms to the student loan system — ones that encourage good behavior instead of what is known as “moral hazard.”

The new system imposes borrowing caps for each year, each degree, and for a student’s lifetime. While there are countless details, borrowers who take federal student loans after July 1, 2026 have a lifetime borrowing cap of $257,500. One could buy a home for the price, and it will likely take many borrowers just as long to pay off a loan of that size as it would have taken them to pay off a home mortgage.

Loans for a single professional degree are capped at $200,000 in total and $50,000 per year. Graduate degree loans are capped at $100,000 and $20,500 per year. Parent PLUS loans that parents can borrow for their child’s undergraduate education are now capped at $65,000 per student and $20,000 per year. (For costlier undergraduate programs, students can get a job.)

The new system also reduces the number of repayment options from seven to two: a “Tiered Standard Plan,” and a “Repayment Assistance Plan” for low-income borrowers. (The previous system had plans where a borrower would be locked into increases in their monthly payment over time — not something that made for financial wisdom.)

One obvious effect of these changes is to rein in student loan debt. In the first quarter of 2026, nearly 43 million Americans had $1.7 trillion in unpaid student loans, and the number now stands at “almost $1.9 trillion.”

The problem with such massive quantities of unpaid debt is that debt constrains a person’s financial commitments, forcing them to pay back a loan instead of having the freedom to spend their money on other things, perhaps more important things. As Solomon advised, “the borrower is the slave of the lender” (Proverbs 22:7).

NBC News printed an anecdote which was calculated to make the new rules look harsh, but it actually serves as a cautionary tale proving why reforms were needed:

“Student borrower Lori Correa, of North Carolina, is in knots over the changes and weighing her options. After using an online loan simulator, she said she estimates her monthly student loan payments would jump from $150 to $713 under one of the new plans because of changes in how payments are calculated.

“As a single mother of three in the early 2000s, Correa switched careers from waitressing to legal studies, earning her associate, bachelor’s and master’s degrees while maxing out her student loans in the hope that she would advance in better-paying jobs.

“She earns about $60,000 a year as a real estate agent’s personal assistant and still owes roughly $200,000 in student debt, which has been financially crippling when coupled with housing costs and medical bills over the years.

“‘I would have hoped that I would be making a decent living on the education that I paid such a dear price for,’ Correa, now 57, said. ‘But I was sold a dream. It feels like now, if you are a normal, average person just trying to make it, you’re not going to.’”

There are multiple layers to this story. First, Correa’s situation seems to be a truly tragic one. She was a single mother in her 30s, with no college education, waitressing to make ends meet for her and three children. What is missing from this picture is the man who should have fathered these children and provided for their mother. Whether there was a messy divorce, an instance of abandonment, or an early death is unclear. But Correa’s decision to pursue further education to better support her family is a sympathetic one.

Second, Correa expressed her feeling that she “was sold a dream” of making more money with a better education. Her current salary of $60,000 is likely more than she would be making if she were still a waitress, but the point is valid. Many aspiring lawyers could have warned Correa that the grueling hours and low pay of entry-level legal work would not be suited to a mother trying to care for three children at home. As it turned out, it seems that Correa either never landed or quickly abandoned a job in the legal profession. Why did no one dissuade her from this course? Stricter rules on borrowing would have done just that.

Third, more than two decades after switching her careers, Correa is still buried under “roughly $200,000 in student debt,” and the new rules will cause her monthly payment to increase nearly five-fold, from $150 per month to $713. On a personal level, anyone who has ever managed a household budget can sympathize. That is a steep jump in expenses, working out to nearly $7,000 more per year than she was paying before. Such a change will force painful budget cuts in her living, and may even force to sell a car, move into a smaller house, or make other drastic changes.

On the other hand, those who have ever paid student loans will recognize the problem: the reason why Correa still has so much debt was that she was only paying $150 per month, with a principal of $200,000. Did that even scratch the principal, or was she only paying interest? At that rate, she was never going to pay off — or even significantly pay down — her student loans.

In a sense, this part of Correa’s plight is the direct result of bad government policy; too many student loan repayment plans with absurdly low monthly rates lured Correa into a situation where she would never be able to break free from her mountain of debt. The simpler payment system, while it might be costlier in the short-run, will ultimately save countless other Americans from laboring on under the mountain of debt faced by Correa.

The basic thrust of this policy (which, admittedly, is designed for students at the beginning of their careers, not single mothers in their 30s) is to encourage hard work over endless schooling. By making student loans scarcer and requiring higher repayment rates, the government now discourages higher education at the margins. If a person is not sure whether they will be able to earn enough to repay their loans, or if they could not borrow enough to pay for their degree, they may reach the reasonable conclusion that it is better to pursue an apprenticeship or career without so many associated costs.

The policy therefore serves as a loss for higher education. More stringent federal financial loans will likely result in lower enrollment and may even force universities to lower their costs — preferably by cutting some of the DEI bureaucracy (under whatever name it now masquerades) — now that they are no longer so heavily subsidized by federal policy.

The policy change has a political aspect as well. Sad and sympathetic stories like Correa’s help drive the narrative for student loan forgiveness, which offers student borrowers an “easy way out” from their debt — essentially making their education free at the public expense. However, when government pays for certain types of behavior, it creates more of it. Unfortunately, student loan forgiveness creates a condition of “moral hazard,” where government incentivizes the bad behavior of not paying off student loans, trusting that the public coffers will provide an endless bounty of loans and forgiveness.

But the government credit card does not have an infinite balance. While last summer’s reconciliation bill solved many poor incentives for student borrowers, the government has yet to address the disarray of its own fiscal house. While Republicans in Congress saved many future American families from being trapped in an endless cycle of debt, Uncle Sam is still slowly sinking into the same quicksand. The government needs to go on the same Dave Ramsey diet it prescribed for student borrowers.