Topline
Wednesday marks new changes to how borrowers take out federal student loans and pay them off, as new rules largely enacted through the “One Big Beautiful Bill Act” take effect and overhaul the federal student loan system.
Key Facts
Last year’s spending bill imposed a number of changes on how student loans are capped, regulated and repaid, including establishing new repayment plans and caps on loans.
The legislation established two new repayment plans—a standard plan and a new income-based “Repayment Assistance Plan,” or RAP—and phased out other existing repayment plans, though borrowers with existing loans can still take advantage of those older plans.
Borrowers can use the Education Department’s repayment calculator to figure out the best plan for them.
One older plan that is going away is the federal SAVE plan, and borrowers enrolled in that plan will have 90 days starting Wednesday to enroll in a different plan.
The bill also established new borrowing caps for parents and graduate students who take out loans, and imposed new restrictions for Pell Grants, among other measures.
In addition to the changes through the “One Big Beautiful Bill,” the Education Department also announced last month that starting Wednesday, borrowers who use auto-pay to make their loan payments will have their interest rate cut by 1% through June 30, 2028.
How Can Borrowers Now Pay Back Their Loans?
Borrowers who take out new loans as of Wednesday will be limited to the standard repayment plan or RAP. The standard repayment plan will give borrowers a set amount they have to pay each month, dividing how much they owe by the time period they have to pay it off. Loans of up to $25,000 will be paid over the course of 10 years, loans of up to $50,000 will be paid over 15 years, loans of up to $100,000 will be paid over 20 years and loans over that amount will be spread out over 25 years. Under RAP, borrowers will make their monthly payments based on income, replacing current income-based repayment plans. Borrowers pay rates based on their annual income (including their spouse’s income), which ranges from $120 per year for those making less than $10,000 (divided up into $10 monthly payments) to 10% of gross annual income for those making over $100,000. Unlike previous income-based plans, RAP allows borrowers’ remaining loans to be forgiven after 30 years of making payments—up from 20 or 25 years under current plans—and has a minimum payment of $10 each month, while low-income borrowers have been able to qualify for $0 repayments.
How Can Existing Borrowers Pay Back Their Loans?
Existing borrowers who took out loans before Wednesday can change to the new plans if they want, but otherwise shouldn’t be impacted by the new changes. Some of those existing plans—including Pay As You Earn, or PAYE, and the Income-Contingent Repayment plan, or ICR—will be phased out in July 2028 though, so borrowers would have to switch at that point. Borrowers on the SAVE plan are the exception here and will have to switch to one of the new repayment plans within 90 days, or else they’ll be automatically enrolled in a new plan.
What New Caps Are There On Student Loans?
The spending bill got rid of former Grad PLUS loans, which did not have a limit, and established new caps on graduate school loans. Borrowers enrolled in professional programs, like medical school, can take out federal loans of up to $50,000 per year, or $200,000 in total, while those in other graduate programs can borrow up to $20,500 per year or $100,000 altogether. The Trump administration issued an updated list of programs that qualify for the higher “professional” cap after students in nursing and other degree programs sued over not being eligible for the higher amount, and a federal judge issued a preliminary ruling in their favor last week. The litigation is still moving forward, though, so it’s possible the government could narrow the list of programs again if it ultimately wins in court. Beyond graduate school, Parent PLUS loans that parents take out for their dependents are now capped at $20,000 annually per student, or $65,000 in total. There are no caps for undergraduate loans, but all borrowers are now limited to taking out no more than $257,500 in federal student loans over their lifetime. Parents taking out loans for dependents are exempt from that cap, as well as borrowers who have already taken out Grad PLUS loans.
What Other Changes Are Taking Place?
The “One Big Beautiful Bill” Act also made changes to Pell Grants, establishing new grants for certain short-term programs and closing a loophole that previously allowed some students with large assets but low income to qualify for Pell Grants. Students will now be disqualified from Pell Grants if their student aid index—a number demonstrating a student’s financial need, based on their families’ financial resources and expenses—is at least twice the maximum Pell Grant given that year. Other changes going into effect include now allowing borrowers to rehabilitate their loans twice, rather than once, and limiting when loans can be in forbearance. Under the new terms, loans can’t be in forbearance—meaning temporarily paused—for more than nine months during any 24-month period. The spending bill also got rid of previous rules that allowed borrowers to have their loans temporarily deferred due to unemployment or economic hardship.
Interest Rate Cut For Auto-Pay Borrowers: What To Know
Separate from last year’s spending bill, the Education Department announced in June a temporary 1% interest rate cut will take effect starting Wednesday for borrowers who use auto-pay to pay back their loans. Auto-pay means borrowers automatically make their student loan payments each month, with money being deducted from their bank accounts without them having to take any action. People who use auto-pay will get the rate cut automatically without having to do anything, and borrowers who aren’t already enrolled in auto-pay will be able to take advantage of the discount as long as they enroll in auto-pay by Sept. 30. The rate cut will be in effect through June 2028 and apply to all borrowers making automatic payments. Borrowers who have defaulted on their loans, or are on the SAVE plan and have to switch to a new repayment plan, will have to apply for a new repayment plan before they can enroll in auto-pay.
Tangent
In addition to the changes to student loans and repayment plans, President Donald Trump also signed an executive order restricting the Public Service Loan Forgiveness program. The restrictions would prohibit employees who work for nonprofits that aren’t in line with the president’s policy agenda from receiving forgiveness under the plan, which forgives a borrowers’ loans after 10 years of public service in the public sector or for a nonprofit. That order is now on hold, however, after a federal judge blocked the policy earlier this week. The litigation is still moving forward and the Trump administration will likely appeal that ruling, though, so it’s possible the restrictions could still take effect in the future.
Key Background
Student loans have become a major political issue in recent years, with more than 42 million people nationwide having some kind of federal student debt. The Biden administration sought to provide widespread debt relief, making a number of incremental measures to reduce borrowers’ debt even as its more sweeping effort got overturned at the Supreme Court. The Trump administration has taken a much different approach, however, with Education Secretary Linda McMahon saying last year, “American taxpayers will no longer be forced to serve as collateral for irresponsible student loan policies.” In addition to the changes through the Big Beautiful Bill, the Trump administration also resumed debt collections on defaulted student loans in May 2025 after they had been paused amid the COVID-19 pandemic. That move has been expected to impact millions of borrowers, though the Education Department said in January it would delay “involuntary” steps to collect on student loans—like by garnishing workers’ wages—while the new changes to the student loan program are being implemented.
Further Reading
Government Cuts Student Loan Interest By 1% If Borrowers Use Auto-Pay (Forbes)
How Trump’s Spending Bill Will Impact Your Student Loans—As It Heads To President For Signature (Forbes)
