Major Student Loan Overhaul Takes Effect July 1 Under New Federal Law

Federal student loan rules changed significantly on July 1, 2026, when key provisions of the One Big Beautiful Bill Act took effect.

The Graduate PLUS loan program ended for all new borrowers. Students who already had these loans may continue borrowing for up to three years or until they finish their current program, as long as they stay at the same institution in the same program.

New borrowing caps now apply. Graduate students in professional programs can borrow up to $50,000 per year, with a $200,000 aggregate limit. Other graduate students are capped at $20,500 annually and $100,000 total. A lifetime borrowing limit of $257,500 applies to all federal student loans, excluding Parent PLUS loans. Parent PLUS loans are now capped at $20,000 per year per dependent student, with a $65,000 lifetime limit per dependent.

Repayment options have also changed. New borrowers are limited to two plans: the Repayment Assistance Plan (RAP), which sets monthly payments at 1 to 10 percent of adjusted gross income with a $10 minimum and a 30-year repayment period, and a Tiered Standard Plan with fixed payments over 10 to 25 years depending on the loan balance.

Existing income-driven repayment plans, including SAVE, PAYE, and ICR, are being phased out. Borrowers currently on those plans must switch to an eligible option by July 1, 2028, or they will be automatically moved to the new Standard plan.

Borrowers who enrolled in autopay on direct loans originated after July 1, 2012, now qualify for a 1 percent interest rate reduction, up from 0.25 percent. Enrollment must be completed by September 30, 2026.