Student Loan FAQ: What the July 1 Overhaul Means for Borrowers

A major overhaul of the federal student loan system is set to take effect on July 1, 2026, reshaping how millions of borrowers repay their debt, qualify for forgiveness, and access new loans. The changes stem from the One Big Beautiful Bill Act (OBBBA), signed into law last year, but their full weight will be felt starting this summer.

Whether you're a current student, a recent graduate, or a parent borrowing on behalf of a child, the new rules will affect repayment choices, loan limits, and eligibility for forgiveness programs. Here's a breakdown of the most important changes and what they mean for you.

Two New Repayment Plans

Starting July 1, borrowers with any Direct Loan disbursed on or after that date will have only two repayment options: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan. Parent PLUS borrowers who take out new loans after July 1 are limited to the Tiered Standard Plan.

RAP is the new income-driven plan. To estimate your monthly payment, divide your adjusted gross income (AGI) by 12, multiply by a base percentage (1% to 10%, depending on income), then subtract $50 per month for each dependent you claim on your tax return. The minimum payment is $10 a month. After 30 years of qualifying payments, any remaining balance is forgiven — though that forgiven amount is taxable as income.

RAP enrollees may also qualify for Public Service Loan Forgiveness (PSLF) in as little as 10 years, provided they make on-time payments. One notable feature: RAP includes an interest subsidy. If your required payment is less than the monthly interest accrual, the government waives the unpaid interest, preventing your balance from growing as long as you stay current.

The Tiered Standard Plan, by contrast, is a fixed-term plan with no income sensitivity and is not eligible for PSLF.

What If You Already Have Loans (Before July 1)?

If you don't plan to take out any new federal loans after the deadline, you'll keep access to most existing repayment options, including the Standard, Graduated, Extended, and Pay As You Earn (PAYE) plans. Student borrowers can also continue using Income-Based Repayment (IBR) or Income-Contingent Repayment (ICR). The only plan you cannot use is the new Tiered Standard Plan.

Parent PLUS borrowers who already have loans can still use IBR or ICR — but only if they consolidate their Parent PLUS Loans into a Direct Consolidation Loan before July 1. After that date, consolidation will lock them out of those legacy plans.

Important nuance: If you take out any new Direct Loan after July 1 — even if you have older loans — you become a "new borrower" under the rules. All of your Direct Loans (old and new) must then be repaid under either RAP or the Tiered Standard Plan.

Forgiveness: PSLF and Buyback

Borrowers can still qualify for forgiveness through PSLF, Teacher Loan Forgiveness, and the new RAP-based forgiveness after 30 years. For those currently in SAVE forbearance due to litigation, note that forbearance time generally does not count toward PSLF. However, you may be able to "buy back" those months if you meet certain conditions: you must be employed by a qualifying employer at the time of buyback, have certified employment for the period, and submit an additional form. You'll then have 90 days to complete the buyback payments.

The SAVE Plan itself is being phased out. Loan servicers will notify borrowers starting July 1 that they must choose a new plan within 90 days, or be automatically enrolled in the Standard or Tiered Standard Plan.

Loan Limits: What's Changing

Annual and aggregate borrowing caps are tightening for graduate, professional, and parent borrowers.

• Grad PLUS loans are eliminated. Graduate students can still borrow Direct Unsubsidized Loans up to $20,500 per year; professional students (e.g., medical, dental, law) can now borrow up to $50,000 per year in unsubsidized loans.
• Parent PLUS Loans are capped at $20,000 per student per year, down from the previous cost-of-attendance limit.
• Aggregate limits: Graduate students face a new ceiling of $100,000 total; professional students can borrow up to $200,000 (minus any graduate borrowing). Parent PLUS aggregate is now $65,000 per student.
• A new lifetime loan limit of $257,500 applies to all borrowers, with no more than $23,000 in subsidized loans.

Existing graduate students who already borrowed at least one loan before July 1 may qualify for a legacy exception, allowing them to continue under old limits for up to three academic years or until program completion, whichever comes first. Switching programs or taking unapproved breaks will void that exception. The window closes for everyone in June 2029.

Only specific professional programs — such as Doctor of Medicine, Doctor of Dental Surgery, Doctor of Veterinary Medicine, and a few others — qualify for the higher $50,000/$200,000 caps. Master's, MBA, PhD, and most nonclinical graduate programs are limited to $20,500 per year and $100,000 total.

More than 25 states have filed a federal lawsuit challenging these degree designations and loan caps, so further changes could be ahead.

How to Choose Your Plan

If all of your loans were disbursed before July 1, you're eligible for both IBR and RAP. Many borrowers may find lower payments under IBR, plus forgiveness in 20 or 25 years instead of 30. Use the StudentAid.gov loan simulator to compare options. If you'll be taking new loans, your choice is effectively RAP or the Tiered Standard Plan — and only RAP qualifies for PSLF.

The bottom line: July 1 marks a fundamental shift in federal student lending. Borrowers who act before the deadline may preserve access to more favorable legacy plans. Those who borrow after will face a simpler, but more restrictive, system.