WASHINGTON, DC, November 20: U.S. Secretary of Education Linda McMahon on the White House on Thursday, November 20, 2025. McMahon is overseeing quite a few changes to federal student loans that took effect July 1, 2026. (Photo by Demetrius Freeman/The Washington Post via Getty Images)
The Washington Post via Getty Images
This month, major changes to federal student loan repayment rules went into effect, impacting the whole system. Many borrowers currently repaying their student loans, in addition to prospective students and their families, will feel the impact, including through higher monthly payments.
The rule updates went into effect on July 1 and are largely related to the Education Department’s implementation of legislative changes under the One Big, Beautiful Bill Act, the Republican-led tax and spending law that President Trump signed into law last yr. Other rule changes come from actions by Education Minister Linda McMahon or court orders following legal challenges.
“Effective today, July 1, 2026, key provisions of President Trump’s Working Families Tax Cuts Act (the Act) take effect. They make student loan repayment easier, make higher education more affordable, and expand access to high-quality, short-term education and workforce programs,” the department said in a press release earlier this month.
Here’s a breakdown of what is modified now with federal student loans and what borrowers have to know.
New student loans now have limited repayment options
Starting July 1, borrowers who take out recent federal student loans or consolidate their existing loans through the Federal Direct Consolidation Loan Program will lose access to all previously available repayment options. These include Income-Based Repayment (or ICR), Income-Based Repayment (or IBR), and Pay As You Earn (or PAYE), that are income-driven repayment plans that provide borrowers reasonably priced payments and eventual student loan forgiveness. These borrowers can even not be eligible for old fixed repayment options reminiscent of the 10-year standard repayment plan, in addition to the prolonged and graduated repayment plans.
These so-called “new” borrowers only have two repayment options available. One of those plans, the Repaid Assistance Plan (RAP), relies on income. The other plan can be a typical graduated repayment plan with a term of 10 to 25 years. Importantly, a borrower’s entire federal loan balance will not be eligible for the older, legacy repayment plans once they take out recent student loans, even in the event that they previously qualified for those older plans.
“If you have at least one loan that was first disbursed on or after July 1, 2026, you must repay all of your eligible direct loans, including loans that were first disbursed before July 1, 2026, under either the Repayment Assistance Plan (RAP) or the Standard Graduated Plan,” the Department of Education said in Online advice.
New student loan repayment plans will impose restrictions on lending
While borrowers taking out recent student loans are limited to RAP and the usual tiered plan, other borrowers currently in repayment can decide to remain of their existing plan or switch to one in every of the brand new plans (based on eligibility). However, with RAP and the Tiered Standard Repayment Plan, eligibility for student loan forgiveness is proscribed.
RAP, like all income-driven repayment plans, allows for eventual student loan forgiveness. But RAP only allows student loan forgiveness after the borrower has been in repayment for not less than 30 years, which is much longer than the 20- and 25-year terms that were available under the older income-driven repayment plan options. RAP can even be a certified Public Service Loan Forgiveness (PSLF) repayment plan, providing loan forgiveness in as little as 10 years for those working in certain full-time public service or nonprofit positions.
But unlike prior to now, the RAP only counts on-time payments toward loan forgiveness. Late payments (even when made just someday after the due date) is not going to be taken into consideration. And payments made under RAP is not going to count toward student loan forgiveness under other income-based plans if the borrower switches programs, a major departure from how those plans previously worked.
The Tiered Standard Repayment Plan, alternatively, isn’t a certified repayment plan for PSLF. This has led some nonprofits to warn borrowers to not enroll their student loans on this recent program.
The federal student loan rate of interest incentive is now in effect
On July 1, the Department of Education began implementing a brand new, temporary incentive program that may reduce the rate of interest on applicable federal direct student loans by 1% if the borrower enrolls in automatic debit. That’s a major increase over the standard quarter-point rate cut for automatic debit. The change is an executive motion by the department to encourage borrowers to enroll in automatic debit.
“The U.S. Department of Education (the Department) has announced that federal student loan borrowers who have enrolled in vehicle reimbursement will be eligible for a 1 percent interest rate reduction beginning July 1,” the department said in a June announcement. “Borrowers who enroll or are already enrolled in car payment by September 30, 2026 will benefit from the rate reduction through June 30, 2028.”
While automatic debt may also help ensure student loan payments are made in full and on time every month, borrowers enrolling in this system should still be cautious. It could be clever for borrowers to still check their accounts every month as sometimes billing errors can occur which can be difficult to reverse.
Access to student loans for fogeys is proscribed in lots of programs
Parent PLUS loans, a form of federal student loan granted to the parents of an undergraduate student, at the moment are largely excluded from income-driven repayment plans and student loan forgiveness. Beginning July 1, under recent regulations implementing the One Big, Beautiful Bill Act, unconsolidated Parent PLUS loans will not be eligible for income-driven repayment plans or qualify for PSLF.
However, Parent PLUS loans consolidated right into a Direct Consolidation Loan by June 30 are eligible to enroll within the ICR plan. The ICR plan will expire by July 2028 as a result of the law changes, but borrowers will then have the ability to modify their student loans from ICR to the IBR plan, which is cheaper than ICR and can be retained under the rule changes. However, if a brand new student loan or Parent PLUS loan is taken out on or after July 1, 2026, the whole balance will not be eligible for IBR.
“If you have PLUS Parent Loans or a Direct Consolidation Loan that includes a PLUS Parent Loan or any other type of Direct Loan, each of which is first disbursed on or after July 1, 2026, you may repay the PLUS Parent Loan or PLUS Parent Loan only under the Standard Graduated Plan,” the Department of Education stated in its online guidance.
Student loans within the SAVE plan can be canceled
Since July 1, borrowers with student loans within the SAVE plan have been receiving notices that they have to select a brand new repayment plan inside 90 days. While the One Big, Beautiful Bill Act repeals the SAVE plan in 2028, a recent court-approved settlement agreement between the Department of Education and a bunch of state challengers repealed the principles authorizing SAVE earlier this yr. Because of this, the department has now begun removing borrowers from this system.
The notices can be sent out in tranches over the following few months. Once a borrower within the SAVE plan receives the notice, they’ve 90 days to enroll their student loan in one other income-driven repayment plan reminiscent of PAYE, IBR or RAP. If they do not, the Department of Education says their loan servicer will involuntarily convert the loans to a typical or graduated standard repayment plan, which can lead to high payments and lost progress toward student loan forgiveness.
