Student Loan Overhaul Takes Effect July 1 With New Repayment Plans and Borrowing Caps

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

The Biden-era SAVE plan has been officially terminated. About 7.5 million borrowers who were enrolled in SAVE are now being transitioned to other repayment options. Borrowers have a 90-day window from the date they receive notice from their loan servicer to choose a new plan. Those who do not act will be automatically placed in the Standard Repayment Plan or the new Tiered Standard Plan.

Two new repayment options are now available. The Repayment Assistance Plan, or RAP, is an income-driven option that sets payments at 1% to 10% of a borrower's adjusted gross income. It includes an interest subsidy and a matching principal payment subsidy to ensure the balance decreases by at least $50 per month. The repayment term for forgiveness under RAP is 30 years.

The Tiered Standard Plan sets fixed payments based on total loan balance. Repayment terms range from 10 years for balances under $25,000 to 25 years for balances of $100,000 or more.

New borrowing limits are also in place. Graduate students can now borrow no more than $20,500 per year and $100,000 total. Parent PLUS borrowers are capped at $20,000 per year and $65,000 total per student. The grad PLUS loan program has been eliminated for new borrowers.

Borrowers enrolled in autopay now receive a 1% interest rate reduction, up from 0.25%. Borrowers must enroll by September 30, 2026, to lock in this benefit through June 30, 2028.

The Pay As You Earn and Income-Contingent Repayment plans are being phased out and will be eliminated by July 1, 2028.