Millions Of Student Loan Borrowers Face Rule Changes On July 1 — What Borrowers Need to Know

Millions of Americans with student debt face significant changes when a major federal student loan overhaul takes effect on 1 July. Several repayment plans will be eliminated, new borrowing limits introduced, and some borrowers could be moved into different repayment arrangements if they do not take action.

The reforms, signed into law by President Donald Trump last year, are intended to simplify the student loan system. However, experts are urging borrowers to review their options before the changes take effect.

Stacey MacPhetres, Senior Director of Education Finance at Bright Horizons, said: 'A lot is changing, and you have to be aware of the changes and see if they affect you.'

Millions Face Repayment Plan Changes

One of the biggest changes affects borrowers enrolled in the SAVE (Saving on a Valuable Education) repayment plan. The Department of Education said around 7.5 million borrowers will be contacted by their loan servicers around 1 July and given 90 days to switch to another repayment option.

Many SAVE borrowers are currently in forbearance while the programme's future remains uncertain.

Elaine Rubin MacPhetres warned that borrowers pursuing Public Service Loan Forgiveness (PSLF) or income-driven repayment forgiveness should closely monitor the transition. She noted that eligible borrowers can switch to the Income-Based Repayment (IBR) plan to continue making progress towards loan forgiveness.

Which Repayment Plans Are Ending?

Several long-standing repayment options are being phased out. The PAYE (Pay As You Earn) plan will stop accepting loans disbursed on or after 1 July. Existing borrowers can remain enrolled, but the programme will be completely phased out by July 2028.

The Income-Contingent Repayment (ICR) plan will also close to new loans from July and will be fully eliminated in 2028. Meanwhile, the existing Income-Based Repayment plan will remain available only for borrowers whose loans were issued before July. New enrolments will no longer be accepted after the deadline. These changes represent a major shift for borrowers who have relied on income-driven repayment plans to manage monthly costs.

New Repayment Options Take Effect

From 1 July, new borrowers will generally have access to only two repayment plans. The first is the Standard Repayment Plan, which remains the default option. Borrowers make fixed monthly payments over a period ranging from 10 to 30 years, depending on the amount borrowed and loan type.

Although monthly payments can be higher, borrowers often pay less interest over the life of the loan. The second option is the new Repayment Assistance Plan (RAP). Under RAP, monthly payments are linked to income and can range from 1% to 10% of adjusted gross income. Borrowers earning less than $10,000 annually may pay as little as $10 per month. Any remaining balance can be forgiven after 30 years of qualifying repayment.

Parent PLUS Borrowers Face a Key Deadline

Parents who have borrowed through the Parent PLUS programme face one of the most important deadlines in the overhaul. The loans themselves are not being eliminated. However, borrowers must consolidate their Parent PLUS loans into a Direct Consolidation Loan before 1 July if they wish to maintain eligibility for income-driven repayment programmes and PSLF.

Those who miss the deadline will permanently lose access to those options and may be limited to standard repayment plans. For some families, that could result in significantly higher monthly payments and fewer opportunities for eventual loan forgiveness.

Graduate Borrowers Will See New Limits

The reforms introduce major changes to federal borrowing limits. Graduate PLUS loans will no longer be available after 1 July, although current borrowers may continue borrowing under existing limits for up to three academic years or until they complete their programme, whichever comes first.

Graduate students using Direct Unsubsidised Loans will be limited to $20,500 per year and $100,000 overall. Professional degree students, including those studying medicine, dentistry, and law, will be able to borrow up to $50,000 annually and $200,000 in total.

Parent PLUS loans will also face new limits of $20,000 per year per student and a lifetime cap of $65,000 per dependent student. Existing borrowers may qualify for grandfathering provisions that allow them to continue borrowing under previous limits for a limited time.

Borrowers Urged to Review Options Now

Education finance experts are advising student loan borrowers to review their repayment options before new federal rules take effect on 1 July.

Jack Wallace, Director of Government and Lender Relations at Yrefy, urged borrowers to act now, saying: 'Go to studentaid.gov and look around and see what's going on with repayment options and what's available now.'

Wallace noted that some borrowers may currently qualify for options that could change after the deadline. Experts say reviewing repayment plans in advance could help borrowers avoid unexpected costs and make better financial decisions.