The federal student loan system will be significantly overhauled starting July 1, 2026, when two new repayment plans take effect and existing income-driven options are eliminated or phased out under the One Big Beautiful Bill Act. The overhaul will affect millions of borrowers, with more than 7 million currently enrolled in the Biden-era SAVE plan facing the need to switch to alternative repayment options.
The U.S. Department of Education finalized the landmark rule on April 30, 2026, creating a new Tiered Standard Repayment Plan and a new income-driven plan called the Repayment Assistance Plan (RAP). According to the Department, these changes will “lower the cost of college and make student loan repayment easier” by simplifying what had become a complex array of repayment options.
The Tiered Standard Plan divides a borrower’s principal and interest into equal monthly payments over a period that depends on the loan balance: 10 years for balances under $25,000, 15 years for $25,000-$49,999, 20 years for $50,000-$99,999, and 25 years for $100,000 or more, according to NPR’s analysis of the changes. The Repayment Assistance Plan bases monthly payments on a borrower’s adjusted gross income, with payments generally ranging from $75 to $250 per month depending on income level, and includes a principal-matching payment to ensure lower-income borrowers see their loan balances decline each month.
The SAVE plan, officially known as Saving on a Valuable Education, is being discontinued after a legal battle that reached the U.S. Supreme Court. According to NPR, the plan had been “the most flexible and generous income-driven repayment plan,” offering borrowers with low incomes the option of a $0 monthly payment. Financial aid experts have expressed concern that pushing millions of borrowers out of SAVE and into new plans that will cost more could exacerbate rising student loan defaults, particularly for those who qualified for zero-dollar payments based on their income.
Borrowers currently enrolled in SAVE will receive notification from their loan servicers starting July 1, with a roughly 90-day window to select a new repayment plan, according to the Department of Education. If borrowers don’t act within that timeframe, they will be automatically enrolled in one of the least flexible repayment options available.
The changes also impose new restrictions on future borrowing. Any borrower taking out a federal student loan after July 1 will be limited to only the two new repayment plans—RAP or the Tiered Standard Plan—eliminating access to older income-driven options like Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) for new loans. For new graduate student loans, borrowing will be capped at $20,500 per year and $100,000 total, a significant reduction from the previous system that allowed borrowing up to the full cost of attendance. Only certain professional degree programs—including law, medicine, dentistry, veterinary medicine, and nine others—will be exempted from the lower limits, with a $50,000 annual cap and $200,000 lifetime limit.
Parent PLUS loans will also face new restrictions, capped at $20,000 per year per dependent child and $65,000 lifetime per child, down from the previous unlimited borrowing tied to program costs. Parents taking out new loans after July 1 will only be eligible for the Tiered Standard Plan and will lose access to income-driven repayment options and Public Service Loan Forgiveness.
Borrowers who took out loans before July 1, 2026, and do not plan to borrow again will retain access to existing repayment plans, including the older Standard, Graduated, and Extended plans, as well as income-driven options like IBR, PAYE, and ICR—though PAYE and ICR are scheduled to be phased out by July 1, 2028. The Department of Education emphasized that the final rule will save American taxpayers $409 billion by simplifying student loan repayment and reducing student loan debt by $224 billion by protecting students from overborrowing.
Sources
- U.S. Department of Education — finalized rule on April 30, 2026, outlining the new Tiered Standard Plan, Repayment Assistance Plan, and new borrowing limits for graduate and parent loans
- NPR — comprehensive guide to July 1 changes covering repayment plans, borrowing limits, and borrower impacts
- The New York Times — reporting on SAVE plan dismantling and borrower transitions
- KCRA — reporting that more than 7 million borrowers enrolled in SAVE will be contacted about switching plans
- Harvard University Financial Aid Office — documentation of income-driven repayment plan changes under the One Big Beautiful Bill Act
