The new policies arrive after several years of major shifts in the federal student loan system. Borrowers experienced a 43-month pandemic payment pause beginning in 2020, while court decisions blocked several initiatives introduced during the Biden administration, including broad student loan forgiveness efforts and the SAVE income-driven repayment plan. According to reports, nearly $190 billion in student debt was still forgiven during the Biden administration through existing authorities such as Public Service Loan Forgiveness.
At the same time, millions of borrowers remain outside active repayment. According to the latest federal data cited by the National Conference of State Legislatures (NCSL), 9 million borrowers are in default on nearly $220 billion in loans, while another 8.4 million borrowers holding approximately $485 billion in federal student loans are in forbearance, many after the courts halted the SAVE plan.
Borrowing Limits and Repayment Options Change for New and Existing Borrowers
Graduate borrowers are now subject to annual and lifetime borrowing limits. Professional programs may qualify for annual borrowing of up to $50,000 with a $200,000 lifetime cap, while other graduate programs are limited to $20,500 annually and $100,000 over a lifetime. According to the same source, a federal court temporarily blocked the Education Department’s original definition of professional programs, prompting the department to publish an expanded list that includes fields such as physical therapy, nursing practice, and occupational therapy during the litigation.
Parent PLUS loans are also subject to new limits of $20,000 per year per student and a lifetime maximum of $65,000. Borrowers who obtained Grad PLUS or Parent PLUS loans before July 1 may continue using those programs for up to three additional years or for their remaining time in their academic program, whichever period is shorter.
The legislation also introduces prorated borrowing limits based on enrollment intensity, reducing available loan amounts for students enrolled less than full time. Undergraduate federal borrowing limits remain unchanged, although colleges and universities may now establish institutional borrowing limits if they apply them consistently within individual programs.
New borrowers may choose between two repayment plans after July 1: the Tiered Standard plan and the Repayment Assistance Plan (RAP). RAP bases monthly payments on income, beginning at 1% of adjusted gross income for borrowers earning between $10,000 and $20,000 and increasing gradually to a maximum of 10% for incomes above $100,000. According to the NCSL, RAP also waives unpaid interest and provides a principal subsidy of up to $50 per month for eligible borrowers.
Colleges Face New Accountability Standards Tied to Graduate Earnings
The legislation also establishes a new accountability framework for institutions participating in federal student aid programs. College programs must demonstrate that most graduates earn more than a typical high school graduate in undergraduate programs or more than a typical bachelor’s degree holder in graduate programs.
Programs that fail this earnings test in two of three consecutive years will lose access to federal student loans and be designated as low-earning outcome programs. According to the source, the Education Department’s final regulations implement this policy through the Student Tuition and Transparency System (STATS) and Earnings Accountability rule while phasing out the previous gainful-employment rule.
The regulations also allow broader institutional consequences. Schools may lose access to all federal financial aid, including Pell Grants, if more than half of their students are enrolled in programs that fail the earnings test or if more than half of their federal aid supports those programs. The department is scheduled to begin collecting data in 2027, with potential eligibility consequences beginning in the 2028-29 academic year.
The legislation leaves the Public Service Loan Forgiveness program unchanged. NCSL also notes that two federal district courts recently struck down an Education Department rule that would have excluded certain organizations with a “substantial illegal purpose” from PSLF eligibility, and the department may appeal those decisions.
