New Federal Student Loan Rules Take Effect July 2026
Major changes to the federal student loan system took effect on July 1, 2026, under the One Big Beautiful Bill Act. The graduate PLUS loan program ended for new borrowers, income-driven repayment plans are being replaced, and borrowers who use autopay now get a 1 percent interest rate reduction.
A major overhaul of the federal student loan system took effect on July 1, 2026, following the passage of the One Big Beautiful Bill Act in 2025. The changes affect nearly 43 million Americans with federal student loan debt.
The graduate PLUS loan program ended for new borrowers as of July 1. New annual and lifetime borrowing limits now apply to graduate and parent PLUS loans. Students starting graduate school after this date may need to turn to private loans to cover costs the federal program no longer covers.
Several income-driven repayment plans are being replaced by a new option called the Repayment Assistance Plan. Borrowers currently enrolled in the SAVE plan have 90 days to select a new repayment option after their loan servicer contacts them. The transition has been bumpy, with reports of technical glitches including repayment plans that do not appear in borrower accounts and inaccurate payment estimates.
The Department of Education also announced a new autopay incentive. Borrowers who enroll in automatic payments will receive a 1 percent interest rate reduction, up from the previous 0.25 percent discount. The benefit applies to federal direct loans that originated after July 1, 2012. Borrowers must enroll by September 30, 2026, to lock in the full discount.
Before the pandemic, more than 80 percent of borrowers in active repayment used autopay. Today, only 40 percent do. The department said the larger discount is designed to encourage on-time payments and strengthen the federal loan portfolio.
For borrowers with large balances, a 1 percent rate reduction can add up significantly over the life of a loan. Borrowers already enrolled in autopay do not need to take any action. Their servicers will automatically apply the additional reduction.
Financial advisors recommend that borrowers review their current repayment plan, check whether they are enrolled in autopay, and contact their servicer if they have questions about the transition to the new Repayment Assistance Plan.
