Federal Student Loan Overhaul Takes Effect July 1 With New Repayment Rules
Major changes to the federal student loan system took effect on July 1, 2026, under the One Big Beautiful Bill Act. The Grad PLUS loan program ended for new borrowers, and a new Repayment Assistance Plan replaced several income-driven repayment options. Borrowers on the SAVE plan must now transition to a new repayment option.
The federal student loan system underwent its most significant restructuring in years on July 1, 2026, following the passage of the One Big Beautiful Bill Act.
The Grad PLUS loan program ended for new borrowers. In its place, new annual and lifetime borrowing limits apply to Direct Unsubsidized Loans. Graduate students can now borrow up to $20,500 per year with a $100,000 aggregate cap. Professional students face a $50,000 annual limit and a $200,000 aggregate cap. A lifetime limit of $257,500 now applies across most loan types.
Parent PLUS loans are now capped at $20,000 per student per year, with a $65,000 lifetime limit per dependent. Parent PLUS loans taken out on or after July 1 are not eligible for any income-driven repayment plan.
The Repayment Assistance Plan, or RAP, replaces several existing income-driven options for new and consolidating borrowers. Under RAP, monthly payments range from 1% to 10% of adjusted gross income depending on income level, minus $50 per dependent, with a $10 minimum. The plan offers loan forgiveness after 30 years and waives interest not covered by the monthly payment.
Borrowers currently on the SAVE plan must transition to an alternative. Those on PAYE or ICR have until July 1, 2028, to switch to an eligible plan such as IBR or RAP.
The Department of Education also increased the autopay interest rate discount from 0.25% to 1% for federal direct loan borrowers who enroll in automatic payments. That benefit applies to loans originated after July 1, 2012, and enrollment is open through September 30, 2026.
Some borrowers have reported technical issues with the transition, including missing repayment plans and inaccurate payment estimates on the federal student aid website.
