The One Big Beautiful Bill Act (OB3) is a 2025 budget law President Donald Trump signed on July 4, 2025, that changes how money for education and safety-net benefits flows through the system. It creates a new K–12 scholarship tax credit, expands how families can use 529 plans for K–12, and tightens some federal student loan rules. Here is the full set of education-related changes.

The Big Picture: What Changed

OB3 is better understood as a wiring change than a classroom reform. It shifts who can move money, where it can go, and how much risk the federal government is willing to take on for education and basic support. In K–12, it strengthens parent- and donor-controlled funding channels; in higher education, it narrows federal lending.

New K–12 Scholarship Tax Credit

OB3 adds a new credit to the Internal Revenue Code for contributions to “Scholarship Granting Organizations” (SGOs), which are approved nonprofits that give K–12 scholarships. In plain terms, taxpayers can donate cash to an SGO that funds children’s education expenses and then claim a nonrefundable federal income tax credit for that donation, up to $1,700 per person or $3,400 for married couples filing jointly.

• The federal credit is reduced if a taxpayer also claims a state tax credit for the same donation, to limit double-dipping.

• States must opt in and list qualifying SGOs with the Treasury; SGOs must spend at least 90 percent of their income on eligible scholarships and meet other rules.

• Eligible scholarships can be used for a broad list of “qualified elementary and secondary education expenses,” such as tuition, tutoring, special needs services, curriculum materials, technology, and related supports, subject to federal and state definitions.

This moves a slice of federal support through the tax code and nonprofits instead of only through districts and agencies, giving individual taxpayers a lever to fund student-level scholarships.

529 Plans as K–12 Tools

529 plans began as “save for college” accounts, but OB3 continues the trend of opening them up for earlier education uses. The law raises the annual cap on K–12 qualified withdrawals from 529 plans from $10,000 to $20,000 per beneficiary, effectively turning them into more flexible K–12 education savings tools for families who can contribute and invest over time.

• Families can more easily combine school tuition, tutoring, and other allowed add-ons under one savings vehicle, as long as those costs meet the qualified-expense rules.​

• While the SGO credit is a “donation-to-scholarships” pathway, the 529 changes are a “household savings” pathway; both route more K–12 spending through family-controlled accounts rather than only through district budgets.

Higher Education: Lending and Outcomes

OB3 also reshapes parts of federal student aid, especially for graduate and professional programs. It caps how much students can borrow in certain federal loan categories and introduces stronger outcome-based accountability for programs that rely on federal loans.

• Graduate unsubsidized loans are capped at $20,500 per year and $100,000 total, with separate higher caps for some professional programs and an overall lifetime borrowing limit of about $257,500.

• The law tightens rules on programs whose graduates earn less than an earnings benchmark tied to high school–only workers, threatening those programs’ access to federal loans if they consistently produce low earnings.

The core idea is that the federal government will be less of an unlimited backstop for student borrowing and more willing to cut off access to loans for programs that show weak labor-market outcomes.

What Changed in the System

Taken together, OB3 is less a single “school reform” and more a rebalancing of who steers education dollars and how risk is shared.

• It strengthens parent- and taxpayer-directed tools in K–12 through a new federal scholarship tax credit and broader K–12 use of 529 plans.

• It narrows federal exposure in higher education lending and moves toward outcome-based screening using earnings data.

OB3 is best understood not as a top‑down school reform but as a recalibration of funding rules that makes it easier for families and community supporters to back the learning paths they choose. The objective is to tweak the system so that when families seek alternatives, there is a viable way for funding to follow those choices.