Millions of Americans with federal student loans will face a new set of rules beginning July 1. The changes affect repayment options, borrowing limits, loan forgiveness programs, and incentives tied to automatic payments.
The overhaul stems from new federal regulations linked to President Donald Trump’s One Big Beautiful Bill Act. According to reports, the changes represent one of the most significant shifts to the federal student loan system in recent years and will affect both current and future borrowers.
More than 40 million Americans hold federal student loan debt. The upcoming changes are expected to alter monthly payment structures, available repayment pathways, and the amount some students and families can borrow through federal programs. Borrowers currently enrolled in existing income-driven repayment plans are among those most directly affected. Several programs will either end or stop accepting new participants as a new framework takes effect.
Repayment Programs Are Being Consolidated as Save Comes to an End
One of the largest changes is the introduction of the Repayment Assistance Plan (RAP), a new income-driven repayment option that will become available on July 1. Payments under RAP are set at roughly 1 percent to 10 percent of income, depending on earnings. The plan also includes interest support, principal reduction incentives, and loan forgiveness after 30 years of payments.
According to Newsweek, RAP will effectively replace several existing income-driven repayment options for many borrowers. Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told the publication that July 1 marks the beginning of changes enacted through the One Big Beautiful Bill Act. He said borrowers will move toward a single consolidated income-based repayment structure that includes a required minimum monthly payment.
The Biden administration’s SAVE plan is also ending following court rulings and a federal settlement. Around 7 million borrowers enrolled in SAVE will need to transition to a different repayment plan. Loan servicers are expected to begin sending 90-day notices starting July 1.
Borrowers who do not select a new repayment option will be automatically placed into a standard repayment plan. According to the same source, many borrowers leaving SAVE are expected to see higher monthly payments.
Several legacy plans will also begin phasing out. PAYE and ICR will stop accepting new borrowers on July 1 and are scheduled to be fully phased out by 2028. Income-Based Repayment (IBR) will remain available as the primary legacy option for existing borrowers.
New Borrowing Caps and Forgiveness Changes Affect Future Borrowers
Federal borrowing limits will also change beginning in July. Parent PLUS loans will be capped at $20,000 per year, with a lifetime limit of $65,000 per student. Graduate and professional students will face new restrictions as well. Annual borrowing will be limited to around $20,500, while a new lifetime cap will prevent borrowing above $100,000 through the affected federal programs.
Newsweek reported that Grad PLUS loans will no longer be available for new borrowers entering new programs after July 1, although some existing borrowers may continue under current terms.
Public Service Loan Forgiveness (PSLF) rules are also being revised. New eligibility standards will apply to qualifying employers. Under the changes, Education Secretary Linda McMahon will have authority to disqualify employers determined to have a “substantial illegal purpose.”
Another change introduces a temporary auto-pay incentive. The Department of Education announced a 1 percent interest-rate reduction for eligible borrowers enrolled in automatic payments. Under Secretary of Education Nicholas Kent said the administration wants borrowers to better understand their repayment choices and remain on track for student loan benefits. The incentive is scheduled to remain available through June 30, 2028.
