Major Student Loan Changes Coming July 1: What Borrowers Must Know
A sweeping overhaul of the federal student loan system takes effect on July 1, 2026, bringing the most significant changes to student loan repayment in years. The Biden-era SAVE plan will officially end, two new Republican-designed repayment plans will launch, and strict new borrowing limits will apply to graduate and Parent PLUS borrowers. The changes, driven by the One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, will affect approximately 43 million Americans holding $1.7 trillion in federal student loan debt.
The End of the SAVE Plan
The Saving on a Valuable Education (SAVE) plan — the most generous income-driven repayment plan ever created — is officially ending after a protracted legal battle that reached the U.S. Supreme Court. More than 7.5 million borrowers are still enrolled in SAVE and must transition to a new plan. The Congressional Budget Office estimated the plan would have cost taxpayers more than $342 billion over 10 years.
Loan servicers will begin issuing 90-day notices to SAVE borrowers on or around July 1. Borrowers who do not act will be automatically enrolled in the Standard Repayment Plan or the new Tiered Standard Plan. The Department of Education has already begun emailing borrowers, warning them to select a new repayment plan.
“Today’s guidance, which every borrower enrolled in the defunct SAVE Plan will receive over the next week, puts the Biden Administration’s illegal student loan bailout agenda to rest once and for all,” said Under Secretary of Education Nicholas Kent. “For years, borrowers have been caught in a confusing cycle of uncertainty, but the Trump Administration’s policy is simple: if you take out a loan, you must pay it back.”
Two New Repayment Plans
Two new plans created by the OBBBA take effect July 1. The Repayment Assistance Plan (RAP) is a new income-driven repayment plan available to most federal Direct Loan borrowers. Monthly payments are based on a sliding percentage (1% to 10%) of adjusted gross income, with forgiveness after 30 years. The plan includes interest subsidies and principal-matching payments for lower-income borrowers, and allows borrowers to reduce their monthly payment by $50 per dependent.
The Tiered Standard Plan offers fixed repayment terms based on total loan balance: less than $25,000 carries a 10-year term; $25,000–$49,999, a 15-year term; $50,000–$99,999, a 20-year term; and $100,000 or more, a 25-year term.
Legacy plans including SAVE, PAYE, and ICR will stop accepting new enrollees on July 1 and will sunset entirely by July 1, 2028. IBR (Income-Based Repayment) remains available indefinitely for borrowers with loans disbursed before July 1, 2026.
New Graduate Borrowing Limits
Grad PLUS loans are eliminated for new borrowers after July 1. New annual and aggregate caps for graduate borrowers are $20,500 per year with a $100,000 aggregate. Professional programs in 11 exempted categories — including medicine, law, dentistry, and veterinary medicine — qualify for $50,000 per year and $200,000 aggregate. A combined lifetime cap of $257,500 applies across all federal loans.
Notably, nursing, physical therapy, and nurse anesthesia are excluded from the exempted list, sparking a lawsuit from 24 states and the District of Columbia. “Higher education is expensive, and our health care system is already under immense strain,” said New York Attorney General Letitia James. “This rule will shut talented people out of critical professions and leave communities with fewer health care providers they desperately need.”
Jennifer Mensik Kennedy, president of the American Nurses Association, added: “Make no mistake, this is not a technicality or a footnote. This rule will be felt in real communities, for example, in rural areas where nurse practitioners, midwives, and nurse anesthesiologists are often the only providers of core care services.”
Parent PLUS Loan Changes
Parent PLUS loans face new annual caps of $20,000 per year per dependent child and $65,000 aggregate per child. Previously, parents could borrow up to the full cost of attendance with no fixed cap. Critically, Parent PLUS borrowers who take out loans after July 1 lose access to all income-driven repayment plans and can only use the Tiered Standard Plan.
A critical deadline looms: Parent PLUS borrowers who have not consolidated into a Direct Consolidation Loan by June 30, 2026, permanently lose access to ICR, IBR, and RAP — and any path to forgiveness through IDR or PSLF. The Education Department recommends applying for consolidation by April 1 to ensure processing. A further trap: taking out a new Parent PLUS loan after July 1 contaminates the entire portfolio, causing even existing consolidated Parent PLUS loans to lose IDR eligibility.
Public Service Loan Forgiveness Changes
PSLF still exists, but new employer eligibility restrictions take effect July 1. The Education Department can deny loan forgiveness to workers whose government or nonprofit employers engage in activities with a “substantial illegal purpose,” including “terrorism, child trafficking, and transgender procedures that are doing irreversible harm to children.” The rule applies prospectively — payments credited before July 1 are not affected. Three federal lawsuits challenge the rule, and several large cities, including Boston and Chicago, have sued.
What Borrowers Should Do Now
Advocacy groups offer mixed guidance on timing. The National Consumer Law Center advises that borrowers do not need to act immediately but should have a plan before their 90-day window opens around July 1. Borrowers who can afford payments in another plan and want to continue progress toward forgiveness may want to switch now. Those interested in the new RAP plan may want to wait until it becomes available on July 1.
“There is a severe backlog of IDR applications; over half a million applications are currently pending,” warned Protect Borrowers. “So, when the Department tells millions of borrowers they need to switch plans in 90 days, that backlog will almost certainly grow exponentially — potentially by 7.5 million people.”
Looking Ahead
Education Secretary Linda McMahon has defended the changes as part of a broader effort to bring down college costs. “It is our overall goal to bring down the cost of college and education,” McMahon told the House education committee in May. Whether colleges will respond by lowering prices — or whether borrowers will face higher costs and fewer options — remains to be seen. With millions of borrowers facing a complex transition and multiple legal challenges still unresolved, the July 1 deadline marks the beginning of a new and uncertain chapter for the federal student loan system.