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Major changes to federal student loan rules take effect on Wednesday, July 1, that will limit how much Americans can borrow and their repayment options.
The overhaul, made under the 2025 “One Big Beautiful Bill Act,” will affect millions of people who take out loans to finance their education.
“These are the most changes we have seen at this scale in a very long time,” said Sarah Austin, a policy analyst at the National Association of Student Financial Aid Administrators, a nonprofit membership organization.
The U.S. Department of Education described the overhaul as a way to streamline the student loan system, which currently consists of seven repayment plans, and rein in student loan debt, which stands at almost $1.9 trillion.
Borrowers enrolled in the Biden-era Saving on a Valuable Education, or SAVE, plan are among those affected as the Trump administration moves to wind down the program and shift borrowers into new repayment options. Loan payments for the roughly 7.2 million people enrolled in SAVE have been on pause for two years as a legal battle over the program’s fate played out.
Borrowers should talk to their loan servicers, and students should look to their financial aid office for assistance as they navigate the transition, experts said. They can also consult online calculators such as this one, from the New York state-funded Education Debt Consumer Assistance Program, to help determine which repayment option makes the most sense.
With so many changes ahead, borrowers need to stay on top of communications from their loan servicers, said Winston Berkman-Breen, the legal director of the advocacy group Protect Borrowers.
“If you have not been paying attention to your loans for four, five, six years, totally understandable. But now is the time to make sure your contact information is up to date,” he said. “Make sure you have your login with studentaid.gov.”
Here’s what to know as the new changes go into effect.
New limits on student borrowing
New rules introduced under last year’s “big beautiful” tax and spending bill impose stricter limits on how much students can borrow to finance their studies.
One major change is to the Parent PLUS loan program, which allows parents to take out a federal loan for their child’s undergraduate education. Historically, parents could borrow up to the full cost of attending a school. Starting July 1, parents will be capped at $20,000 a year and $65,000 total per student.
New borrowing limits will also affect graduate students and those pursuing professional degrees. Grad students will still be able to take out up to $20,500 per year. But beginning July 1, a new cap will prevent them from taking out more than $100,000 for their degree.
The “big beautiful bill” also affects people pursuing professional degrees, including those in pharmacy, veterinary medicine, chiropractic, law, medicine, optometry, osteopathic medicine, podiatry, theology and clinical psychology, according to the Department of Education. Under the new rules, students in those fields are restricted to borrowing $50,000 per year and $200,000 total.
That change has sparked an outcry from some professions excluded from the professional designation, including nursing, with advocates saying it could worsen the nation’s nurse shortage. The Education Department has said 95% of nursing students won’t be impacted by the borrowing cap.
The median cost of attending a public medical school is nearly $300,000 over four years, while it exceeds $400,000 at a private medical school, according to KFF Health News, citing data from the Association of American Medical Colleges.
As of July 1, new student loan borrowers are blocked from Graduate PLUS loans, which allowed people to borrow as much as they needed to fund their degree. Current Grad PLUS borrowers will be grandfathered and will still be able to access the loans, according to EdSource.
Finally, aside from a few carveouts, anyone who gets a loan on or after July 1 will have a lifetime loan cap of $257,500, according to the Education Department.
“That’s per borrower, so over the course of your educational experience, stacking undergrad and grad, that is going to be your cap,” Berkman-Breen said.
Repayment options are shrinking
New loan borrowers
Beginning July 1, borrowers who take out a new federal student loan will have only two repayment options: the Tiered Standard Plan and a new income-driven repayment plan called the Repayment Assistance Plan, or RAP.
Borrowers with existing loans who take out a new loan after July 1 will also be subject to the new rules. Once the new loan enters repayment, all of their federal loans must be repaid under one of the two new plans, Austin said.
Current borrowers
Current borrowers who do not take out new loans after July 1 can continue to access the existing repayment options, which include:
- Standard Repayment Plan
- Extended Repayment Plan
- Graduated Repayment Plan
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Income-Contingent Repayment (ICR)
Borrowers may also opt into the new Repayment Assistance Plan (RAP), according to Austin.
However, the One Big Beautiful Bill Act phases out the PAYE (Pay As You Earn) and ICR (Income-Contingent Repayment) plans. Borrowers enrolled in those programs must move to another repayment plan by July 1, 2028.
“They could choose from the existing plans (standard, extended, graduated, IBR) or they could enroll in RAP, if it is after July 1, 2026,” Austin said. “They would not be eligible for the new Tiered Standard Plan.”
Anyone enrolled in the standard, extended, graduated or IBR plans can stay put as long as they don’t take out a new loan, according to Austin.
“Any of those existing plans that don’t sunset in 2028, they can just continue to repay under those plans until they pay off their loans, as long as they don’t borrow any new loans on or after July 1, 2026,” she said.
SAVE borrowers face a separate transition
The One Big Beautiful Bill Act sunsets the SAVE plan in July 2028. But borrowers enrolled in SAVE will need to choose a new repayment plan before then, according to experts.
Loan servicers are expected to begin notifying SAVE borrowers on or around July 1 that they must select a new repayment option within 90 days, Austin said.
“If they do nothing in that 90-day period, then the loan servicer will automatically put them in the standard plan,” Austin said.
SAVE borrowers may switch to RAP or to one of the remaining existing repayment plans. However, borrowers who move into PAYE or ICR would have to switch again before July 1, 2028, when those plans are eliminated.
Pell Grant rules are changing
The new tax law also tightens eligibility requirements for the Pell Grant program, the largest federal aid program for low-income students. Students who receive non-federal grants or scholarships up to or exceeding the cost of their attendance will no longer be eligible for additional funding through the Pell Grant program, Austin said.
The One Big Beautiful Bill Act also closes what Austin referred to as the “Pellionaire loophole,” which allowed students with low incomes but high assets to receive a Pell Grant.
For example, under the previous rules, a borrower with $1 million in assets but an annual income of $10,000 could still qualify for a Pell Grant, Austin said. Borrowers report assets — including cash, savings, checking, the net worth of businesses, and the net worth of investments — when completing the FAFSA, which is used to apply for a Pell Grant.
The tax law also expands Pell Grant eligibility to students enrolled in shorter-term workforce training programs. Programs in fields such as nursing assistance, early childhood education and automotive mechanics could qualify under the new rules.
Previously, workforce programs generally had to last at least 15 weeks and include 600 clock hours of instruction to be eligible for Pell Grant funding.
“Beginning on July 1, 2026, students will be able to receive Pell Grants for enrollment in high-quality, short-term educational programs that prepare them for high-skill, high-wage, and in-demand jobs,” the Education Department said in a recent release.
