Major changes to federal student loan repayment rules went into effect this month and are rippling across the system. Many borrowers currently repaying their student loans, as well as prospective students and their families, will see the impacts, including through higher monthly payments.
The rule updates went into effect on July 1 and largely are tied to the Education Department’s implementation of legislative changes under the One Big, Beautiful Bill Act, the Republican-led tax and spending bill that President Trump signed into law last year. Other rule changes stem from executive actions by Education Secretary Linda McMahon, or court orders following legal challenges.
“Effective today, July 1, 2026, key provisions of President Trump’s Working Families Tax Cuts Act (the Act) take effect, simplifying student loan repayment, making higher education more affordable, and expanding access to high-quality, short-term education and workforce programs,” said the department in a statement earlier this month.
Here’s a breakdown of what has now changed for federal student loans, and what borrowers need to know.
New Student Loans Now Have Limited Repayment Plan Options
As of July 1, borrowers who take out any new federal student loans, or consolidate their existing loans via the federal Direct consolidation loan program, will lose access to all repayment options that were previously available. These include Income-Contingent Repayment (or ICR), Income-Based Repayment (or IBR), and Pay As You Earn (or PAYE), which are all income-driven repayment plans that provide borrowers with affordable payments and eventual student loan forgiveness. These borrowers also will become ineligible for legacy fixed repayment options like the 10-year Standard repayment plan, as well as the Extended and Graduated repayment plans.
These so-called “new” borrowers will be limited to just two repayment plan options. One of those plans, the Repayment Assistance Plan (or RAP), will be based on income. The other plan will be a Tiered Standard repayment plan with a term of 10 to 25 years. Importantly, a borrower’s entire federal student loan balance will become ineligible for the older, legacy repayment plans if they take out any new student loans, even if they previously had qualified for those older plans.
“If you have at least one loan first disbursed on or after July 1, 2026, you’ll be required to repay all of your eligible Direct Loans, including loans first disbursed before July 1, 2026, under either the Repayment Assistance Plan (RAP) or the Tiered Standard Plan,” said the Education Department in online guidance.
New Repayment Plans For Student Loans Will Have Limits On Loan Forgiveness
While borrowers who take out any new student loans will be restricted to RAP and the Tiered Standard plan, other borrowers currently in repayment can choose to remain in their existing plan, or they can switch to one of the new plans (depending on eligibility). But RAP and the Tiered Standard repayment plan will have limits on student loan forgiveness eligibility.
RAP, like all income-driven repayment plans, allows for eventual student loan forgiveness. But RAP won’t allow for student loans to be forgiven until the borrower has been in repayment for at least 30 years, which is far longer than the 20- and 25-year terms that were available under the older income-driven repayment plan options. RAP will also be a qualifying repayment plan for Public Service Loan Forgiveness, or PSLF, which allows for loan forgiveness in as little as 10 years for those work in certain full-time public service or nonprofit positions.
But unlike in the past, only on-time payments will count toward loan forgiveness under RAP. Late payments (even if they are made just one day after the due date), won’t count. And payments made under RAP will not count toward student loan forgiveness under other income-driven plans if the borrower switches programs, which is a major departure from how these plans have operated historically.
The Tiered Standard repayment plan, meanwhile, is not a qualifying repayment plan for PSLF. That has prompted some nonprofit organizations to warn borrowers to avoid enrolling their student loans in this new program.
Interest Rate Incentive For Federal Student Loans Is Now In Effect
On July 1, the Education Department began implementing a new, temporary incentive program that can reduce the interest rate on applicable federal Direct student loans by 1% if the borrower enrolls in automatic debit. That is a significant increase from the usual quarter-point interest rate reduction for auto-debit. The change is an executive action by the department, and is intended to persuade borrowers to enroll in auto-debit.
“The U.S. Department of Education (the Department) announced that federal student loan borrowers enrolled in auto pay will be eligible for a 1 percent interest rate reduction beginning July 1,” said the department in an announcement in June. “Borrowers who enroll in auto pay by September 30, 2026, or who are already enrolled, will benefit from the interest rate reduction through June 30, 2028.”
While automatic debt can help ensure that payments on student loans are made in full and on time each month, borrowers who enroll in the program should nevertheless be careful. It would be prudent for borrowers to still check their accounts each month as billing errors can sometimes occur, and these can be difficult to reverse.
Student Loans For Parents Now Have Restricted Access To Many Programs
Parent PLUS loans, a type of federal student loan issued to the parent of an undergraduate student, are now largely ineligible for income-driven repayment plans and student loan forgiveness. As of July 1, under new regulations to implement the One Big, Beautiful Bill Act, Parent PLUS loans that have not been consolidated can no longer be enrolled in income-driven repayment plans or qualify for PSLF.
Parent PLUS loans that were consolidated into a Direct consolidation loan by June 30 can, however, enroll in the ICR plan. The ICR plan will be phased out by July 2028 under the legislative changes, but borrowers can then switch their student loans from ICR to the IBR plan, which is more affordable than ICR and is preserved under the rule changes. But taking out any new student loans or Parent PLUS loans on or after July 1, 2026 would make their entire balance ineligible for IBR.
“If you have parent PLUS loans or a Direct Consolidation Loan that includes a parent PLUS loan, or any other type of Direct Loan, any of which are first disbursed on or after July 1, 2026, then you’re permitted to repay the Direct Consolidation Loan or the parent PLUS loan under only the Tiered Standard Plan,” said the Education Department in its online guidance.
Student Loans In The SAVE Plan Are Getting Kicked Out
Borrowers with student loans in the SAVE plan started getting notices on July 1 that they must select a new repayment plan within 90 days. While the One Big, Beautiful Bill Act sunsets the SAVE plan in 2028, a recent court-approved settlement agreement between the Education Department and a group of state challengers vacated the regulations authorizing SAVE earlier this year. As a result, the department has now started the process of pushing borrowers out of the program.
The notices are being sent out in tranches over the next several months. Once a borrower in the SAVE plan receives the notice, they’ll have 90 days to enroll their student loans in a different income-driven repayment plan like PAYE, IBR, or RAP. If they don’t, the Education Department says their loan servicer will involuntarily move the loans into a Standard or Tiered Standard repayment plan, which may lead to high payments and lost progress toward student loan forgiveness.
Read the full article here