Federal student loans are just weeks away from going through some of the biggest changes in a generation. Reforms that are scheduled to take effect on July 1 will completely upend repayment and student loan forgiveness options for millions of borrowers. And in many cases, borrowers should take action before then.
‘Beginning this summer, the Department will implement commonsense loan limits on how much students and parents can borrow, simplify the current patchwork of repayment options, establish a new, congressionally authorized income-driven repayment plan, and enforce other protections for students, families, borrowers, and taxpayers,” said the Education Department in an announcement last week unveiling finalized regulations that will go into effect on July 1 to implement elements of President Donald Trump’s One Big, Beautiful Bill Act. “The Department’s final rule will carry out the Act’s sweeping higher education reforms to support student borrowers and improve the health of the federal student lending system.”
But as July approaches, and the Trump administration’s federal student loan changes get closer to implementation, the window of time for some borrowers to act is rapidly closing. Here’s a breakdown of what borrowers should do in the next few weeks.
Finish Borrowing Federal Student Loans Before July 1
The new regulations that go into effect this summer will impact every aspect of student loans, from disbursement to repayment and loan forgiveness. Importantly, the rules will impose new borrowing caps for students and parents, and will also substantially narrow available repayment plan options.
For borrowers who are currently in school, it may be prudent (if possible) to complete your federal student loan borrowing prior to July 1. That said, the regulations do contain some limited exceptions to the new borrowing caps for current students enrolled in a program who must continue to borrow student loans after July 1.
“For borrowers enrolled in a graduate program before July 1, 2026, and who have already received a loan for that program, an interim exception to the new loan caps will apply,” said the department in a fact sheet released on Wednesday. “These borrowers will continue to have access to loans on the same terms that they had when they entered the program until they graduate.”
But there is no exception that would allow borrowers to avoid the changes to student loan repayment. Borrowers who take out any new federal student loans, or consolidates their current loans through the Direct loan program, on or after July 1, would be cut off from all current repayment plan options including the Income-Based Repayment (or IBR) plan, which offers student loan forgiveness after 20 or 25 years in repayment. These borrowers would only be able to access two new plans: a Tiered Standard repayment plan with a term of 10 to 25 years (depending on the balance), or the Repayment Assistance Plan (or RAP), a new income-driven program that will require 30 years of payments before a borrower can discharge their debt.
Move Student Loans Out Of SAVE Plan
The SAVE plan, an income-driven repayment plan launched by the Biden-Harris administration in 2023, is about to disappear after two years of legal battles. And the more than seven million borrowers who have been in the involuntary SAVE plan forbearance, many since 2024, have a shortening window of time to take action on their student loans.
According to the Education Department, starting on July 1, borrowers will begin receiving notices that they will have 90 days to move their student loans into a different repayment plan. If borrowers want to stay in an income-driven plan to have affordable payments and to remain on track for eventual student loan forgiveness (including for the Public Service Loan Forgiveness program), they will need to affirmatively apply for one of the other available IDR options. If they don’t, the department will place them in a Standard plan. Standard plan payments may be unaffordable for many borrowers, and typically won’t count toward loan forgiveness for IDR plans or for PSLF.
While the 90-day clock shouldn’t begin ticking for SAVE plan borrowers until July 1, it may be prudent to start the transition process prior to then. The Education Department is still dealing with a backlog of applications for income-driven repayment plans, and while loan servicers have made substantial progress in reducing that backlog, there are indications that the backlog is starting to tick up again. Some student loan borrower advocacy groups are concerned that a surge in applications this summer, associated with the termination of SAVE and the launch of RAP, could cripple the department’s IDR processing system as millions of people rush to switch plans upon receiving the department’s final notice.
Switch Student Loans To PAYE Plan Before July 1 If Eligible
The One Big, Beautiful Bill Act preserves the PAYE plan, one of the most affordable of the income-driven repayment options, until July 2028. And the Education Department has indicated that borrowers will have unrestricted access to PAYE until the program is phased out.
But the department’s new regulations for federal student loans released last week severely undercuts those assurances. Under the new rules, borrowers who weren’t already in the PAYE plan as of July 1, 2024 will be barred from enrolling in PAYE once they go into effect. Since many borrowers eligible for PAYE may have switched out of the program (for example, to enroll in the SAVE plan when it was launched in 2023), it may be critical to apply for PAYE as soon as possible, prior to July 1, to try to get grandfathered in before the new rules take effect. PAYE is only sticking around for another two years regardless, but the other available repayment plans will likely require higher monthly payments for most people compared to the PAYE plan. PAYE also offers 20-year student loan forgiveness, a shorter timeline compared to most other income-driven repayment plans.
Prospective applicants should be aware that PAYE is limited to Direct federal student loan borrowers who had no outstanding balance as of October 1, 2007, and had a new Direct loan disbursement on or after October 1, 2011.
Parent Borrowers Should Consolidate Student Loans Before July 1
Starting on July 1, Parent PLUS loans, a type of federal student loan taken out by the parent of an undergraduate student, will be barred from income-driven repayment plans as well as student loan forgiveness under IDR and PSLF, unless the loans have been consolidated into a Direct consolidation loan before that date.
“If you are currently repaying a Parent PLUS loan, you need to act fast if you want to have the option to repay it in an income-driven repayment (IDR) plan,” warned the National Consumer Law Center in a new blog post last month. “If you do not apply to consolidate Parent PLUS loans quickly, so that the consolidation loan is issued before July 1, 2026, you will not be able to pay those loans in an IDR plan moving forward. If you haven’t yet applied to consolidate your Parent PLUS Loans, act now so you don’t miss the July 1, 2026 deadline.”
Borrowers who successfully consolidate their Parent PLUS loans through the Direct consolidation program before July 1 will then have a two year window to enroll in the Income-Contingent Repayment (or ICR) plan, and then subsequently switch to the IBR plan before ICR is phased out in July 2028. Parent PLUS borrowers will have to make at least one payment under ICR before they can move to IBR. But because the consolidation process must be completed before July 1 of this year, and it takes time (four to six weeks or longer) for student loans to be consolidated once an application is submitted, the window of time to apply to consolidate is rapidly closing.
Evaluate Student Loans For RAP
The Education Department is preparing to launch a new income-driven repayment plan on July 1 called the Repayment Assistance Plan, or RAP. Borrowers with existing federal student loans can select RAP or remain in their current income-driven repayment plan (except for SAVE plan borrowers). Once the PAYE and ICR plans are phased out in 2028, only IBR and RAP will remain. But as noted earlier, borrowers who take out any new student loans or consolidate existing loans on or after July 1 of this year will only be able to access RAP, not any of other income-driven options (including IBR).
For borrowers who have the choice, RAP has a number of benefits and drawbacks, and now is the time to evaluate the tradeoffs. On the one hand, RAP will often have lower payments than IBR and ICR (but not SAVE or PAYE). RAP’s most significant benefit is an interest subsidy that will halt any further balance growth associated with interest accrual. But RAP will have no caps on monthly payments, a potential downside for higher income earners; a minimum monthly payment requirement, which is a downside for low-income or no-income borrowers; and a 30-year repayment term before student loans can be forgiven. The Education Department also tweaked the final regulations for RAP last week so that payments made under RAP cannot count toward student loan forgiveness under the other income-driven repayment plans, including IBR, although RAP payments should continue to count toward PSLF.
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