Sweeping Changes to Federal Student Loans Begin July 1

Starting July 1, significant alterations to federal student loan borrowing, repayment, and forgiveness will take effect. These changes stem from new federal regulations associated with President Donald Trump’s One Big Beautiful Bill Act, marking one of the most substantial shifts in the U.S. student loan system in recent years.

Why It Matters

Over 40 million Americans carry federal student loan debt. The adjustments starting July 1 could dramatically influence monthly payments, borrowing choices, and long-term repayment strategies. Some borrowers may experience increased monthly payments or reduced forgiveness prospects, while new borrowers will face tighter borrowing limits.

Full List of Student Loan Changes Taking Effect July 1

• New Repayment Assistance Plan (RAP) Launches

  A fresh income-driven repayment option, the Repayment Assistance Plan (RAP), will be introduced. Payments are set between 1% to 10% of income, contingent on earnings. Forgiveness is possible after 30 years of payments. Features such as interest support and principal reduction incentives are included. RAP will replace existing income-driven plans, possibly resulting in higher borrowing costs over time.

  “With many of those plans officially being phased out, July 1 will mark the start date for the alterations passed through the One Big Beautiful Bill Act,” Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, commented.

  Borrowers formerly on a repayment assistance plan will transition to one consolidated income-based repayment plan, requiring a minimum monthly payment.

• SAVE Plan Ends and Borrowers Must Switch

  The Biden-era SAVE repayment plan is ending due to court rulings and a federal settlement. Approximately 7 million borrowers must shift to a new plan, with loan servicers issuing 90-day notices starting July 1. Borrowers who do not select a plan will be automatically moved to a standard repayment option, likely increasing monthly payments for many moving away from SAVE.

• Most Income-Driven Plans Begin Phasing Out

  Additional legacy repayment plans will cease new enrollments. Alongside SAVE, the PAYE and ICR plans will close to new enrollments starting July 1, fully phasing out by 2028. IBR (Income-Based Repayment) remains the core legacy option for current borrowers. For new borrowers, RAP and a standard plan will be the primary alternatives.

• Stricter Borrowing Limits for Students and Parents

  New caps will limit federal loan amounts starting in July. The limitations include:

  • Parent PLUS loans: capped at $20,000 per year, $65,000 lifetime limit per student.
  • Graduate and professional students: graduate borrowing restricted to around $20,500 annually, prohibiting loans exceeding $100,000 lifetime.

  These caps may compel some families to resort to private loans to cover additional costs.

  “The higher interest rates being charged will come at a significant cost for those borrowing money, and the caps on the amounts borrowed will force many to forgo higher learning or take on private loans with higher rates,” stated Kevin Thompson, CEO of 9i Capital Group.

• Grad PLUS Loans Eliminated for New Borrowers

  Graduate students will no longer have access to Grad PLUS loans for new programs starting July 1. Current borrowers may continue under existing terms in certain cases.

• Changes to Public Service Loan Forgiveness (PSLF)

  Modifications to the PSLF program will include updated criteria for employer qualification. Some organizations may lose eligibility, as Education Secretary Linda McMahon can disqualify employers deemed to have a “substantial illegal purpose.”

• New Interest Rate Incentive for Auto-Pay

  The Department of Education announced a 1% interest rate reduction incentive for borrowers enrolled in auto-pay through June 30, 2028.

  Under Secretary of Education Nicholas Kent remarked, “The Trump Administration is making student loan repayment easier than ever, and borrowers should not wait to take advantage of this temporary interest rate reduction.”

  This incentive aims to help borrowers remain on track with student loan benefits regardless of age or college credentials.

What Happens Next

Borrowers, particularly those enrolled in SAVE, are expected to receive notifications starting July 1 and typically have 90 days to choose a new repayment plan. Not acting could result in automatic placement into a standard plan, potentially leading to higher monthly payments and fewer benefits.