The federal student loan system is just a few weeks away from undergoing some of the most significant changes in a generation. July 1 is the implementation date for massive reforms to repayment plans, student loan forgiveness, and federal aid disbursement restrictions. Many active federal student loans will be impacted, as well as current and prospective college and graduate students applying for loans and other forms of federal student aid.
The changes are the culmination of legislative and regulatory reforms, including the One Big, Beautiful Bill Act that Republican lawmakers in Congress enacted last summer; executive actions by the Trump administration; and court rulings that have upended federal student loan programs. Taken together, these changes will transform vast elements of the student loan system, and millions of borrowers may be forced to make difficult decisions on their borrowing or repayment strategy in the coming weeks.
Here’s a breakdown of some of the biggest changes to student loans that are set to go into effect this July, and what borrowers should know about them.
7.5 Million Borrowers With Student Loans In The SAVE Plan Will Have Three Months To Change Repayment Plans
The SAVE plan is officially being eliminated, and borrowers have a narrowing window of time to take action.
SAVE was intended to be the most affordable income-driven repayment plan, providing borrowers with more affordable monthly payments compared to any other option, and eventual loan forgiveness after 20 or 25 years in repayment (and sometimes sooner). But the program was effectively terminated earlier this spring after a federal circuit court ordered a lower court judge to effectuate a settlement agreement between the Education Department and a group of Republican-led states that had challenged the program.
Now, more than seven million borrowers with student loans enrolled in SAVE will have to switch plans. Starting on July 1, the department will begin sending notices to borrowers giving them a 90-day window to pick a different repayment plan. If they don’t act within that timeframe, the department will involuntarily place them into a Standard plan, which may result in unaffordable payments and blocked student loan forgiveness.
“Starting on July 1, federal loan servicers will begin issuing notices to borrowers, instructing them to exit the illegal SAVE Plan and enroll in a legal repayment plan within 90 days,” said the Education Department in a statement in March. “Borrowers who do not transition plans within the 90-day period communicated by their servicer will be automatically enrolled into either the Standard Repayment Plan, or the new Tiered Standard Plan that will be available beginning July 1. Servicers will notify borrowers of their specific 90-day deadline. The 90-day period provides borrowers with ample time to explore repayment options that best suit their needs and plan accordingly.”
The department has already started issuing warning notices to SAVE plan borrowers, informing them that they will soon need to move their student loans into other repayment plans. Although borrowers don’t have to take immediate action, there may be risks in waiting too long.
New Repayment Plans Launch For Federal Student Loans In July
While SAVE is winding down, the Education Department will be launching two new repayment plans for federal student loans on July 1.
The first plan is a Tiered Standard repayment plan. This plan won’t be based on a borrower’s income or their ability to pay. Instead, it will require that a borrower repay their federal student loans in full over the course of a 10 to 25 year term, depending on the loan balance. Importantly, payments made under the Tiered Standard repayment plan will not count toward student loan forgiveness under the Public Service Loan Forgiveness, or PSLF, program.
The second plan is a new income-driven repayment option called the Repayment Assistance Plan, or RAP. RAP will function similarly in many ways to existing income-driven repayment plans by using a formula applied to the borrower’s income to calculate an affordable monthly payment. RAP will also have an interest subsidy intended to prevent runaway balance growth associated with interest accrual, and a principal benefit that will allow many borrowers to gradually reduce their student loan balances, even if they aren’t able to make large payments. But RAP will be more expensive than several other income-driven plans (including SAVE), it will have a less generous definition of family size, and it will require 30 years of payments before a non-PSLF borrower can qualify for student loan forgiveness, far longer than existing income-driven plans. And payments made under RAP will not count toward student loan forgiveness under other IDR plans (although they will count toward PSLF for qualifying borrowers).
New Restrictions On Accessing Legacy Repayment Plans For Student Loans
Borrowers currently in repayment on their student loans will have the option to switch to the Tiered Standard Plan or RAP, but they won’t be required to do so. These borrowers can continue to access “legacy” repayment plans like the “regular” Standard plan, the Graduated and Extended repayment plans, and existing income-driven repayment plans like IBR, ICR, and PAYE (although ICR and PAYE are getting phased out in 2028, and new regulations appear to impose potentially concerning restrictions on new enrollments in the PAYE plan starting in July).
That said, starting on July 1, borrowers who take out new federal student loans or consolidate their existing loans will be cut off from all legacy repayment plan options. They will be limited to only the Tiered Standard Plan or RAP, under the provisions of the One Big, Beautiful Bill Act.
“Borrowers that take on any new loan — including borrowers that consolidate an existing federal loan —on or after July 1, 2026 will only be eligible for two repayment plans: the standard repayment plan or the RAP plan,” said the National Consumer Law Center in a blog post last year explaining the new bill.
Repayment options will be even more narrow for Parent PLUS borrowers. Under the changes imposed by the bill, Parent PLUS borrowers who have not consolidated their federal student loans before July 1 will not be able to access any income-driven repayment plan or pursue student loan forgiveness under IDR or PSLF. And Parent PLUS borrowers who consolidate their loans or take out any new student loans on or after July 1 (whether they are federal student loans for their own education, or new Parent PLUS loans for a child) may be limited entirely to the Tiered Standard plan only.
New Limits On Taking Out Student Loans
Major reforms won’t be limited to existing student loan borrowers. Legislative and regulatory changes will also impact current and prospective students who intend on taking out new federal student loans to fund their upcoming degree program. New caps and limitations on borrowing will take effect starting on July 1.
“The amended regulations cap federal student loan borrowing for both graduate and professional students, as well as cap loans for parents who borrow on behalf of dependent undergraduates,” said the Education Department in a fact sheet published in April summarizing the changes to federal student loan borrowing limits under new regulations. “Beginning on or after July 1, 2026: Graduate student loans are capped annually at $20,500, with an aggregate cap of $100,000; Professional student loans are capped annually at $50,000, with an aggregate cap of $200,000; For the first time, Parent PLUS borrowers are capped annually at $20,000, with an aggregate cap of $65,000 per dependent; All borrowers who receive a loan made on or after July 1, 2026, are subject to an aggregate lifetime loan limit of $257,500.”
The new rules provide for some limited exceptions to the new borrowing limits for those who were enrolled in a program before July 1, 2026, and who have already received a federal student loan for that program. But for everyone else, critics have warned that the new restrictions will drive many prospective students to take out costly and riskier private student loans to close any funding gap, or out of higher education entirely.
Proposed Restrictions On Student Loans Getting Forgiven Under PSLF
Also on July 1, the Education Department is planning on launching new regulations that would give Secretary of Education Linda McMahon the authority to disqualify organizations from participating in PSLF. The PSLF program allows borrowers to get their federal Direct student loans forgiven if they make payments for at least 10 years while working full-time for qualifying nonprofit or government organizations.
Under the new rules, the Secretary could disqualify nonprofit groups or state and city governments from PSLF eligibility if their activities have a “substantial illegal purpose.” Critics have argued that the new rules would allow the Trump administration to weaponize the PSLF program by punishing nonprofit groups and Democratic-led city and state governments that have crossed the administration, such as by not cooperating with immigration enforcement or continuing to promote DEI initiatives. The Trump administration has disputed that, arguing that the new rules will protect taxpayers and strengthen the integrity of the PSLF program. Borrowers would be caught in the crosshairs in any battle between their employer and the Education Department, however, as they could be cut off from student loan forgiveness if their employer is disqualified, with no individual right to appeal, even if they had nothing to do with the challenged activities.
The proposed new PSLF rules are currently facing multiple legal challenges. But no court has issued a ruling yet, and as of right now, the rules are on track to go into effect starting on July 1. At that point, the department could begin disqualifying employers from continuing to be eligible for PSLF, jeopardizing the ability of untold numbers of borrowers to get their federal student loans forgiven under the program.
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