For many borrowers, the shift will mean fewer repayment options and new monthly payment calculations. There will also be stricter borrowing limits, and millions enrolled in the Biden-era SAVE plan will be forced to switch. More than 40 million Americans hold federal student loan debt, and the coming changes could significantly alter monthly payments and long-term costs.
Experts warn that failing to act or choosing the wrong repayment plan could lead to higher bills or lost access to forgiveness pathways altogether. “With many of those plans officially being phased out, July 1 will mark the start date for the alterations passed through the One Big Beautiful Bill Act,” Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
“The most relevant change is for borrowers that were on a repayment assistance plan. Starting next week, there will be one consolidated income-based repayment plan, and unlike past efforts, a minimum payment will be required each month.”
1. The SAVE Plan Is Ending: The popular Saving on a Valuable Education (SAVE) plan will be shut down. About 7 million borrowers will need to switch to a new repayment option, and loan servicers will begin sending 90-day notices starting July 1. Borrowers who don’t act will be automatically moved to a standard repayment plan, which may come with higher monthly bills.
“The SAVE Plan was the Biden Administration’s third and final attempt at mass federal student loan forgiveness, and it was blocked repeatedly by both district and appeals courts,” the Education Department said in a press release last year. “Without congressional authorization, the Biden Administration misled millions of borrowers into the illegal SAVE Plan with false promises of artificially low monthly payments—oftentimes as low as $0—and a short timeline to student loan ‘forgiveness.'” SAVE, along with other income-driven plans like PAYE and ICR, will be phased out entirely by July 1, 2028.
2. A New Repayment System Replaces Multiple Plans: The overhaul also is dramatically simplifying repayment options, but experts warn the new options also reduce flexibility. New borrowers will have just two options: Standard Repayment Plan (fixed payments) Repayment Assistance Plan (RAP) RAP will serve as the primary income-based option with payments set at roughly 1 to 10 percent of income, and loan forgiveness will only be possible after 30 years of repayment. Older income-driven plans typically offered forgiveness in 20–25 years, meaning some borrowers could stay in repayment longer.
3. Fewer Choices for Existing Borrowers: Borrowers with existing loans won’t be forced to switch immediately, but their options are shrinking. Current borrowers can stay on some legacy plans temporarily, but the IBR (Income-Based Repayment) is the only major legacy plan expected to remain available long-term. Over time, most borrowers will be moved into RAP or standard plans. Taking out a new loan after July 1 could limit your options, forcing all loans, old and new, into the new system.
4. Graduate PLUS Loans Are Eliminated: The bill eliminates one of the most widely used funding options for graduate students. Grad PLUS loans will no longer be available to new borrowers starting July 1 whereas previously, these loans allowed students to borrow up to the full cost of attendance.
5. New Caps on How Much You Can Borrow: For the first time, stricter limits will apply to federal student loans. For graduate programs, the new cap is at about $20,500 per year or $100,000 total. Professional degrees defined by the Department of Education like law or medicine can see up to $50,000 per year or $200,000 total. Parent PLUS loans have a limit of just $20,000 per year and $65,000 lifetime per student. “The higher interest rates being charged will come at a significant cost for those borrowing money, and the caps on the amounts borrowed will force many to forgo higher learning or take on private loans with higher rates,” Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek.
6. Changes to Public Service Loan Forgiveness (PSLF): New rules will also affect the PSLF program, including updated criteria for which employers qualify. Some organizations may no longer count toward forgiveness eligibility, as Education Secretary Linda McMahon will now have authority to disqualify any employers found to have a “substantial illegal purpose.”
7. New Interest Rate Incentive for Auto-Pay: The Department of Education also announced the additional incentive of a 1 percent interest rate reduction for borrowers enrolled in auto-pay. “The Trump Administration is making student loan repayment easier than ever, and borrowers should not wait to take advantage of this temporary interest rate reduction to stay on track for key student loan benefits,” said Under Secretary of Education Nicholas Kent in a statement. “No matter your age or college credential, we want to make sure that borrowers can understand their options and choose a repayment option that works best for them.” The rate will be available through June 30, 2028, for eligible borrowers.
What Happens Next: For most borrowers, July 1 is the starting point, and notices to switch plans will roll out over the summer. Borrowers will generally have 90 days from receiving notice to act. The larger transition away from older repayment plans will continue through 2028, when most legacy options are fully phased out.
Michael H. Drucker
