Millions of Americans with student loan debt will soon face significant changes in repayment options. Starting July 1, the One Big Beautiful Bill Act (OBBBA) will bring alterations affecting repayment methods, borrowing limits, and program options. This shift will result in fewer repayment plans and new monthly payment calculations.
The importance of these changes is substantial, with more than 40 million Americans holding federal student loans. The coming modifications could have a notable impact on monthly payments and long-term costs. Experts caution that making the wrong repayment plan choice or failing to act could result in higher bills or losing access to forgiveness options.
The Biggest Changes Taking Effect July 1
1. The SAVE Plan Is Ending
The popular Saving on a Valuable Education (SAVE) plan will be discontinued. Approximately 7 million borrowers must transition to a new repayment plan. Loan servicers will begin sending 90-day notices starting July 1. Borrowers who do not take action will be shifted to a standard repayment plan, possibly facing higher monthly bills.
According to a press release by the Education Department last year, the SAVE Plan represented the Biden Administration’s final attempt at federal student loan forgiveness. With ongoing legal challenges, the plan was stopped, and the administration misleadingly promised low payments and quick forgiveness without congressional approval. The phase-out of SAVE, PAYE, and ICR will continue until July 1, 2028.
2. A New Repayment System Replaces Multiple Plans
The overhaul simplifies repayment options, but reduces flexibility. New borrowers will choose between two options: a Standard Repayment Plan, with fixed payments, or a Repayment Assistance Plan (RAP). RAP will constitute the primary income-based option, with payments ranging from 1 to 10 percent of income. Loan forgiveness will be available after 30 years of repayment. Previously, forgiveness was common in 20–25 years, possibly leading some to stay in repayment longer.
3. Fewer Choices for Existing Borrowers
Existing borrowers can remain on some legacy plans temporarily, but options are decreasing. The IBR (Income-Based Repayment) will be the only major legacy plan continuing long-term. Over time, most borrowers will move into RAP or standard plans. Those taking out new loans after July 1 will face fewer options, with all loans shifting to the new system.
4. Graduate PLUS Loans Are Eliminated
The bill discontinues Graduate PLUS loans for new borrowers starting July 1. Previously, these loans allowed students to borrow up to the entire cost of attendance.
5. New Caps on How Much You Can Borrow
Stricter limits on federal student loans will apply for the first time. For graduate programs, the cap is $20,500 per year or $100,000 total. Professional degrees, defined by the Department of Education, like law or medicine, can see up to $50,000 per year or $200,000 total. Parent PLUS loans have a limit of $20,000 per year and $65,000 lifetime per student. Higher interest rates and borrowing limits may force many to consider private loans at steeper rates, stated Kevin Thompson, CEO of 9i Capital Group.
6. Changes to Public Service Loan Forgiveness (PSLF)
Updates to the PSLF program include changes in employer qualification criteria. Education Secretary Linda McMahon can now disqualify employers with a ‘substantial illegal purpose’ from participation.
7. New Interest Rate Incentive for Auto-Pay
The Department of Education announced a 1 percent interest rate reduction for borrowers enrolled in auto-pay. Under Secretary of Education Nicholas Kent highlighted the Trump Administration’s intent to simplify student loan repayment, urging borrowers to take advantage of this temporary interest rate reduction, available through June 30, 2028.
What Happens Next
For most borrowers, July 1 marks the beginning of these changes. As notices roll out over the summer, borrowers typically have 90 days from notice receipt to take action. The transition away from older plans will continue through 2028 as legacy options fully phase out.