Student Loan Changes Are Coming in July 2026: What Borrowers Need to Know

HOW STUDENT LOAN CHANGES TAKE EFFECT ON JULY 1, 2026

The One Big Beautiful Bill Act, passed on July 4, 2025, significantly overhauled the federal student loan system, with many changes taking effect on or around July 1, 2026.

The law aims to streamline student loan repayment, but it may leave some questioning how it affects them.

So, let’s explore the key changes and what they mean. Here is what you can expect:

• New borrowers will have only two repayment options: the Tiered Standard Repayment Plan and the Repayment Assistance Plan (RAP).
• The Saving on a Valuable Education (SAVE) Plan will end, and borrowers will have 90 days to choose another income-driven repayment plan.
• Income-Based Repayment (IBR) will remain available to existing borrowers indefinitely.
• Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) will remain available to existing borrowers until July 1, 2028, at which time they will be phased out.
• Existing borrowers who take out new federal loans on or after July 1, 2026, will lose access to prior income-driven repayment options and be limited to RAP.
• Graduate, professional and Parent PLUS borrowers will face new loan limits.

NEW STUDENT LOAN BORROWERS WILL HAVE ONLY TWO REPAYMENT OPTIONS

The current student loan repayment structure offered several options, including three fixed repayment plans – the Standard Repayment Plan, Graduated Repayment Plan and Extended Repayment Plan – and four income-driven repayment plans: IBR, ICR, PAYE and SAVE.

Effective July 1, 2026, new borrowers will be presented with only two repayment options. The existing fixed repayment plans will be replaced by the Tiered Standard Repayment Plan, and the only income-driven repayment option will be the Repayment Assistance Plan.

After nearly two years of being in administrative forbearance, beginning July 1, 2026, 7.5 million existing borrowers on the SAVE plan will have 90 days to transition to another income-driven repayment plan (either IBR, ICR, PAYE or the new RAP) or they will automatically be enrolled in the Standard Repayment Plan, which could mean much higher monthly payments.

Borrowers with loans that were issued and consolidated before July 1, 2026, and do not take out new loans will continue to have access to current repayment options, though ICR and PAYE will no longer be available after July 1, 2028.

THE NEW TIERED STANDARD REPAYMENT PLAN

The new Tiered Standard Repayment Plan will consolidate the Standard, Graduated and Extended Repayment plans effective July 1, 2026. This option will be available to all borrowers and does not offer loan forgiveness because the balance is repaid in full.

The current fixed repayment options offered borrowers the opportunity to pay their loan balance within 10-30 years. The Standard Repayment Plan offered a fixed payment for 10 years, while the Graduated Repayment Plan offered lower payments at first and then increased every two years until the end of the payment term (typically, within 10 years, but up to 30 years for consolidated loans). The Extended Repayment Plan allowed borrowers to utilize a fixed or graduated payment schedule that ensured the loan would be repaid within 25 years.

Under the new Tiered Standard Repayment Plan, payments would remain fixed, and the repayment term would be based on the borrower’s loan balance:

• 10 years for balances under $25,000
• 15 years for balances of $25,000 to $49,999
• 20 years for balances of $50,000 to $99,999
• 25 years for balances of $100,000 or more.

There will be a minimum payment of $50 per month (or your outstanding balance if it’s less than $50).

THE NEW REPAYMENT ASSISTANCE PLAN

The Repayment Assistance Plan, or RAP, will be the only income-driven repayment option available for federal student loans first disbursed on or after July 1, 2026. RAP is eligible for Public Service Loan Forgiveness, but it will not be available for Parent PLUS loans or consolidation loans that include Parent PLUS debt.

Unlike legacy income-driven repayment plans, which generally calculated monthly payments as a percentage of discretionary income and provided forgiveness after 20 to 25 years, RAP bases monthly payments on the borrower’s adjusted gross income. As a result, some higher-income borrowers may pay more under RAP than they would have under previous income-driven repayment plans.

For borrowers with dependents, monthly payments will be reduced by $50 for each dependent claimed on the borrower’s federal tax return. However, monthly payments cannot be reduced below $10. RAP will also waive any monthly interest that exceeds the required payment, up to a maximum of $50 per month. Any remaining loan balance may be eligible for forgiveness after 30 years of qualifying payments.

For married borrowers who file a joint tax return, monthly payments will be calculated using the couple’s combined adjusted gross income. If both spouses have outstanding federal student loans, each spouse’s payment will be based on their proportional share of the couple’s total student loan balance. If only one spouse has student loan debt, the couple may choose to file separate tax returns so that payments are based solely on the borrowing spouse’s income.

However, filing separately may result in the loss of certain tax benefits, including the student loan interest deduction, education tax credits, and other advantages available to joint filers. Couples should carefully weigh any potential student loan savings against the broader tax consequences before deciding how to file.

WHAT CURRENT STUDENT LOAN BORROWERS NEED TO KNOW

Your repayment options will depend largely on whether you take out new federal student loans after July 1, 2026. Borrowers who have federal student loans that were disbursed prior to July 1 and will not be taking out any additional loans will continue to have access to the legacy payment options of Standard, Graduated and Extended Repayment Plans, IBR and the new payment option, RAP. They will also have access to ICR and PAYE until July 1, 2028.

If you have federal student loans disbursed before July 1, 2026, but take out additional federal loans on or after that date, your options will narrow. In that case, you will lose access to legacy repayment plans and be limited to either the Tiered Standard Repayment Plan or RAP.

SAVE BORROWERS FACE A SEPARATE TRANSITION

The clock is running out for borrowers enrolled in the SAVE Plan. Loan servicers have begun sending notices, and starting July 1, 2026, borrowers will have 90 days to enroll in a different repayment plan. Remember, those who do not select a new plan will be automatically placed into the Standard Repayment Plan on October 1, 2026, which is expected to result in significantly higher monthly payments.

Borrowers with loans issued before July 1, 2026, who do not plan to borrow additional federal student loans will have more options. They will be eligible to enroll in the Standard, Graduated or Extended Repayment Plan, IBR, ICR, PAYE or RAP. Borrowers considering ICR or PAYE should be aware, however, that these plans are scheduled to be phased out by July 1, 2028, at which time they will need to transition to another repayment option.

WHO MAY BE MOST AFFECTED BY THESE STUDENT LOAN CHANGES?

STUDENTS PLANNING TO BORROW AFTER JULY 1, 2026

Students entering college and planning to use federal student loans after July 1 should familiarize themselves with the applicable borrowing limits.

Annual federal loan limits for undergraduate students remain unchanged. Borrowing limits for dependent and independent students are as follows:

• First year: $5,500 (dependent) / $9,500 (independent)
• Second year: $6,500 (dependent) / $10,500 (independent)
• Third year and beyond: $7,500 (dependent) / $12,500 (independent)

The maximum total amount an undergraduate student may borrow is $31,000 for dependent students and $57,500 for independent students.

Students entering graduate school will be subject to new federal student loan borrowing limits. Prior to the OBBBA, students could borrow up to the total cost of their program per year under Direct PLUS loans for graduate students. This program will end on July 1, 2026.

Students pursuing a professional degree may borrow up to $50,000 per year, with a lifetime borrowing limit of $200,000. The Department of Education classifies the following programs as professional degrees: chiropractic, clinical psychology, dentistry, law, medicine, optometry, osteopathic medicine, pharmacy, podiatry, theology, and veterinary medicine.

Students enrolled in all other graduate degree programs may borrow up to $20,500 per year, with a lifetime borrowing limit of $100,000.

FAMILIES USING PARENT PLUS LOANS

Parents who plan to help finance their children's college education will have more limited borrowing options through the federal student loan system after July 1.

Parent PLUS loans will be capped at $20,000 per year per student, with a lifetime borrowing limit of $65,000 per student, from all parents’ combined borrowing. In addition, repayment options will be restricted to the Tiered Standard Repayment Plan.

As a result, parents will no longer be eligible for repayment plans that offer loan forgiveness through the Public Service Loan Forgiveness program or after a specified repayment period. Parents with Parent PLUS loans borrowed before July 1 may still qualify for the Income-Based Repayment or Income-Contingent Repayment plans if their loans were consolidated before the applicable deadline.

However, due to the current backlog in loan consolidation processing, pursuing this option may not be feasible.

HOW TO PREPARE BEFORE THE NEW RULES TAKE EFFECT

If you haven’t yet taken these steps, now is the time to:

• Review your current repayment plan
• Understand whether future borrowing could trigger new rules
• Watch for communications from your loan servicer
• Connect with a financial advisor to discuss your options
• Incorporate student loan changes into your broader financial plan

WHAT TO KNOW BEFORE STUDENT LOAN CHANGES TAKE EFFECT

To recap, here are the key takeaways:

• New borrowers will have only two repayment options beginning July 1, 2026
• Existing borrowers may be able to remain in certain current plans
• PAYE and ICR are being phased out by July 2028
• SAVE borrowers will have 90 days to transition to another repayment plan effective July 1, 2026
• Understanding how these changes fit into your overall financial picture may help you prepare for upcoming repayment decisions