Starting July 1, significant modifications will affect the borrowing, repayment, and forgiveness of federal student loans in the U.S. These adjustments, part of the new federal regulations linked to President Donald Trump’s One Big Beautiful Bill Act, represent substantial changes in the student loan system.
Impact on Borrowers
Over 40 million Americans with federal student loan debt will be impacted. Experts suggest that these changes could alter monthly payments, borrowing options, and long-term repayment paths considerably. Some borrowers may encounter increased monthly payments and reduced forgiveness choices.
Key Changes Effective July 1
1. Introduction of the Repayment Assistance Plan (RAP)
The Repayment Assistance Plan (RAP) will be introduced as a new income-driven repayment option. Payments will range from roughly 1% to 10% of income based on earnings. Loan forgiveness will be available after 30 years of payments. RAP includes features such as interest support and principal reduction incentives. For many borrowers, RAP will replace existing income-driven plans, potentially increasing long-term borrowing costs.
2. Termination of the SAVE Plan
The SAVE repayment plan, introduced during the Biden administration, is ending due to court rulings and a federal settlement. Approximately 7 million borrowers need to transition to a new plan, with loan servicers sending 90-day notice alerts starting July 1. Those who fail to choose a new plan will be automatically transitioned to a standard repayment option, likely resulting in higher monthly payments.
3. Phase-Out of Several Income-Driven Plans
Legacy repayment plans, such as PAYE and ICR, will no longer accept new borrowers starting July 1. These plans will be completely phased out by 2028. The IBR (Income-Based Repayment) remains available for existing borrowers. New borrowers will primarily have RAP and standard plan options.
4. Stricter Borrowing Limits
New borrowing caps will be implemented for students and parents. Parent PLUS loans will be capped at $20,000 per year and $65,000 lifetime per student. Graduate and professional students will face a limit of about $20,500 annually, with a new lifetime cap of $100,000. This means some families may have to turn to private loans to cover costs, which typically have higher interest rates.
5. Elimination of Grad PLUS Loans for New Borrowers
Graduate students will no longer be eligible for Grad PLUS loans for new programs starting July 1. Existing borrowers can continue under current terms in certain cases.
6. Updates to Public Service Loan Forgiveness (PSLF)
Changes to the PSLF program will include new criteria for qualifying employers. Some organizations may no longer qualify for forgiveness eligibility since Education Secretary Linda McMahon can now disqualify employers with a “substantial illegal purpose.”
7. New Interest Rate Incentive for Auto-Pay
The Department of Education has introduced an incentive of a 1% interest rate reduction for borrowers enrolled in auto-pay. This incentive will be available through June 30, 2028, and aims to simplify student loan repayment.
Next Steps for Borrowers
Starting July 1, borrowers—particularly those currently in the SAVE plan—will receive notifications and have 90 days to select a new repayment plan. If they do not act, they could be automatically moved to a standard plan, which often involves higher monthly payments and reduced benefits.