Major changes to federal student debt rules took effect July 1, 2026, reshaping how millions of Americans can borrow and repay educational loans under the One Big Beautiful Bill Act. The overhaul imposes stricter borrowing limits and eliminates most income-driven repayment options for new borrowers, marking what experts describe as the most sweeping restructuring of federal student lending in decades.
Beginning July 1, new federal student loans are now restricted to just two repayment options: the Repayment Assistance Plan (RAP), an income-driven option, and a Tiered Standard Plan with terms ranging from 10 to 25 years. This represents a dramatic narrowing from the seven repayment plans previously available, eliminating access to older income-driven options like Pay As You Earn (PAYE) and Income-Based Repayment (IBR) for borrowers taking out new loans.
The new RAP plan extends loan forgiveness timelines significantly. Borrowers will need to remain in repayment for 30 years before forgiveness, compared to the 20- or 25-year terms available under older income-driven plans. Critically, only on-time payments count toward forgiveness under RAP—late payments, even by a single day, will not accumulate credit toward eventual cancellation.
The legislation also imposes strict caps on borrowing amounts that take effect immediately. Parent PLUS loans, which previously allowed parents to borrow up to the full cost of attending college, are now capped at $20,000 per year and $65,000 total per dependent child. Graduate students face new limits of $20,500 per year with a $100,000 aggregate cap. Professional degree students can borrow up to $50,000 annually with a $200,000 total limit. All borrowers now face a combined lifetime cap of $257,500 across all federal loans.
Graduate PLUS loans, which allowed graduate students to borrow unlimited amounts, have been eliminated entirely for new borrowers. Current borrowers can continue accessing these loans, but the program closes to new applicants starting July 1.
A key consequence of the new rules is that borrowers who take out any new federal loan after July 1 must repay their entire loan balance—including older loans from before the effective date—under either RAP or the Tiered Standard Plan. This means a borrower with existing loans under a legacy repayment plan cannot preserve those terms if they borrow again.
The changes create particular urgency for the roughly 7.2 million borrowers currently enrolled in the SAVE (Saving on a Valuable Education) plan. Loan servicers began notifying SAVE borrowers on July 1 that they must select a new repayment option within 90 days. If borrowers do not choose a plan by the deadline, their loan servicer will automatically enroll them in a Standard or Tiered Standard repayment plan, which may result in substantially higher monthly payments and loss of progress toward forgiveness.
SAVE borrowers can switch to RAP or to one of the remaining legacy income-driven plans, such as IBR or PAYE, though those plans are themselves scheduled to be phased out by July 2028. The Education Department described the overhaul as a way to streamline the student loan system and rein in the nation’s $1.9 trillion in outstanding student debt. According to Sarah Austin, a policy analyst at the National Association of Student Financial Aid Administrators, the scale of the changes is unprecedented: “These are the most changes we have seen at this scale in a very long time.”
The Education Department also implemented a temporary interest rate incentive on July 1. Borrowers who enroll in automatic payment debit by September 30, 2026, will receive a 1 percent interest rate reduction through June 30, 2028—a significant increase from the standard quarter-point reduction for auto-pay enrollment. The department hopes this incentive will encourage borrowers to set up automatic payments to reduce default risk.
Experts recommend that borrowers review their current repayment plans and contact their loan servicers to understand which option best suits their circumstances. Borrowers can use online calculators to compare repayment scenarios, and those with questions should verify their contact information is up to date on studentaid.gov.
Sources
- CBS News — Details on new borrowing limits for Parent PLUS, graduate, and professional loans; repayment plan options for new and existing borrowers; SAVE plan transition timeline and 90-day deadline; Pell Grant changes
- Forbes — Analysis of five major rule changes effective July 1, 2026, including RAP forgiveness terms (30 years, on-time payments only), Parent PLUS loan restrictions, interest rate incentive for auto-pay, and SAVE plan phase-out
- National Association of Student Financial Aid Administrators (NASFAA) — Expert commentary from Sarah Austin on the scale and scope of the rule changes
- U.S. Department of Education — Official guidance on new repayment plan options, borrowing limits, and the temporary 1 percent interest rate reduction for auto-debit enrollment
