Federal Student Loan System Overhaul: What Borrowers Need to Know

The federal student loan landscape is undergoing a significant transformation due to the One Big Beautiful Bill Act, signed into law on July 4, 2025. This overhaul introduces new borrowing limits, modifies repayment options, and alters loan forgiveness eligibility, impacting millions of current and prospective borrowers. Here's a comprehensive breakdown of the key changes.

The End of the SAVE Plan

The Saving on a Valuable Education (SAVE) plan, known for its generous terms including low monthly payments and expedited loan forgiveness, is being phased out. Republicans successfully argued in court that it was excessively generous. Borrowers enrolled in SAVE, who experienced a pause on interest accrual and required payments, will see interest resume accruing on August 1, 2025. While payments are not yet required, many borrowers may opt to switch to a different plan to avoid balance increases. The SAVE plan will be officially shut down by July 1, 2028, requiring borrowers to transition to another repayment option before then.

Changes to Loan Limits

Graduate Students

Significant changes are coming for graduate students. The grad PLUS loan, which previously allowed students to borrow up to the total cost of their program, will be eliminated next year. Borrowing will be capped at $20,500 per year, with a lifetime graduate school loan limit of $100,000, a substantial decrease from the previous $138,500 cap. However, students pursuing professional degrees (e.g., medical or law school) will have a higher annual borrowing cap of $50,000 and a lifetime cap of $200,000, increased from $138,500.

Parent PLUS Loans

Parents and caregivers utilizing parent PLUS loans will also face new borrowing limits. These loans will be capped at $20,000 per year and $65,000 in aggregate per child.

Lifetime Limit

The law establishes a new lifetime limit of $257,500 per person for undergraduate and graduate loans combined.

Modified Repayment Options

The One Big Beautiful Bill Act dramatically reduces the number of repayment options available to new borrowers, from the current seven plans to just two.

Standard Plan

The standard plan assigns borrowers a repayment window of 10 to 25 years, contingent on their debt size, with fixed monthly payments similar to a home mortgage. The repayment period is structured as follows:

Less than $25,000 owed: 10-year repayment
$25,000 to $50,000 owed: 15-year repayment
$50,000 to $100,000 owed: 20-year repayment
$100,000 or more owed: 25-year repayment

Repayment Assistance Plan (RAP)

The Repayment Assistance Plan (RAP) is designed for borrowers concerned about affording the fixed monthly payments of the standard plan. RAP bases payments on a borrower's adjusted gross income (AGI):

AGI up to $10,000: $10 monthly payment
AGI between $10,000 and $20,000: 1% of AGI
AGI between $20,000 and $30,000: 2% of AGI
Payments top out at 10% of AGI for borrowers earning $100,000 or more annually.

Current borrowers will have access to RAP, alongside some older plans. While monthly payments for middle-income borrowers on RAP may be lower than those in older plans, RAP is not as generous as the outgoing SAVE plan. RAP requires a minimum monthly payment of $10, even from the lowest-income borrowers, eliminating the $0 option available in previous plans.

RAP includes some potentially beneficial features. Any interest remaining after a borrower makes their monthly payment will be waived, preventing loan balances from growing. Additionally, the government will contribute up to $50 to ensure lower-income borrowers see their principal balances decrease.

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Loan forgiveness under RAP will occur after 360 qualifying payments, or 30 years, a longer timeframe than previous plans that offered forgiveness after 20 or 25 years.

Income-Based Repayment (IBR)

An older plan, Income-Based Repayment (IBR), remains available to borrowers who took out loans before July 1, 2026. IBR caps payments at 15% of discretionary income for loans taken out before July 2014 and 10% for newer loans. While the SAVE plan is being discontinued, borrowers with older loans may prefer IBR if they are close to qualifying for loan forgiveness, as pre-2014 loans are eligible for forgiveness after 25 years, and newer loans after 20 years, shorter than RAP's 30-year schedule.

However, the Education Department has temporarily paused processing loan forgiveness for IBR borrowers due to legal challenges surrounding the SAVE plan.

Key Dates and Deadlines

Several dates are critical for borrowers to keep in mind:

August 1, 2025: Interest resumes accruing for borrowers in the SAVE plan.
July 1, 2026: New loan limits and repayment options take effect. Grad PLUS loans are eliminated for new borrowers.
June 30, 2026: Deadline to consolidate Parent PLUS loans to maintain access to IBR.
July 1, 2028: The SAVE, PAYE, and ICR plans are officially eliminated. Borrowers in these plans must transition to IBR or RAP.

Implications for Student Loan Borrowers

The changes introduced by the One Big Beautiful Bill Act will have varied effects on different borrowers:

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Current SAVE Plan Borrowers: Must transition to a new repayment plan by July 1, 2028.
Graduate Students: New borrowing limits may make it harder to afford expensive graduate programs.
Parents: New limits on PLUS loans may require families to find alternative funding sources or choose less expensive schools.
Future Borrowers: Face fewer repayment options and potentially longer paths to loan forgiveness.

Expert Advice and Recommendations

Review Loan Status: Log in to studentaid.gov to determine your current loan status, repayment plan, and eligibility for various programs.
Consider Consolidation: If you have Parent PLUS loans, consider consolidating them before July 1, 2026, to maintain access to IBR.
Explore Repayment Options: Use the Student Loan Simulator to estimate monthly payments under different repayment plans, including IBR and RAP.
Certify Employment for PSLF: If you work for the government or a nonprofit, file a PSLF Form to certify your employment and track your progress toward loan forgiveness.
Beware of Default: Contact your loan servicer immediately if your loans are past due or in default to explore options for rehabilitation or consolidation.

Navigating the Changes

The overhaul of the federal student loan system presents both challenges and opportunities for borrowers. By understanding the new rules, deadlines, and repayment options, borrowers can make informed decisions to manage their debt effectively.

Changes to Borrower Defense and Closed School Discharge

The bill makes changes to the Borrower Defense and Closed School Discharge programs, which provide loan cancellation in situations where a school engaged in misconduct or closed before a student could complete their program. These changes make it more difficult for borrowers to access relief by applying rule improvements made in 2022 only to loans issued after July 1, 2035.

Rehabilitation Agreements

The bill changes the rule that borrowers can only use a rehabilitation agreement to remove their loans from default once. Beginning in July 2027, borrowers will have the opportunity to rehabilitate out of default a second time.

The Repayment Assistance Plan (RAP) in Detail

The Repayment Assistance Plan (RAP), a new income-driven repayment plan created by the One Big Beautiful Bill, is very different from existing IDR plans. Unlike existing IDR plans, even the poorest student loan borrowers must make a minimum payment of at least $10 a month, regardless of whether or not they fall below the federal poverty line and regardless of their family size. Like the SAVE plan, the RAP plan will waive any interest not covered by the borrowerâs monthly payment.

The RAP proposal departs radically from the core design tenets of all previous income-based repayment plans. Most concerningly, it will no longer set aside a certain percentage of a borrowerâs income from being counted as âavailableâ to be put toward their payments. This replaces the way that all prior income-based plans calculated monthly payments: excluding a base portion of a borrowerâs annual income for basic needs (using the pre-existing federal poverty level) and then applying the same percentage across leftover (âdiscretionaryâ) income.

RAP will have borrowers pay a changing percentage of their total income as it increases. Take two borrowers, one of whom earns $1 more than the other (in this example, neither have dependents). If the first borrowerâs annual income is $30,000, their maximum monthly payment would be $50, while a second borrower who earns $30,001 would pay $75 per month. The most obvious way around these spikes wouldâve been to mirror the federal income tax system, where, as oneâs income moves across brackets, they only pay an increased percentage on the incremental income in that higher bracket.

Public Service Loan Forgiveness (PSLF)

The Public Service Loan Forgiveness (PSLF) program remains available to borrowers enrolled in qualifying plans, including IBR and RAP. Borrowers pursuing Public Service Loan Forgiveness (PSLF) should note that while payments in a 10-year standard plan qualify for forgiveness, payments in standard plans with repayment periods longer than 10 years do not qualify.

Borrowers can track their PSLF progress in their StudentAid.gov accounts. However, there is a large backlog of unprocessed PSLF Buyback requests.

Effects on Parent PLUS Borrowers

The Big Bill significantly changes Parent PLUS borrowersâ repayment options. Only Parent PLUS borrowers that consolidate their loans before July 1, 2026 and are enrolled in any IDR plan between now and July 1, 2028 will be eligible for an income-driven repayment plan after the SAVE, ICR, and PAYE plans are eliminated on or before July 1, 2028. Those borrowers will be eligible for the Income-Based Repayment (IBR) plan. They will not be eligible for RAP. Borrowers that take on new Parent PLUS loans or consolidate their existing Parent PLUS loans after July 1, 2026 will only be eligible for the new standard repayment plan. If borrowers consolidate or take on Parent PLUS loans after July 1, 2027 those loans will not be eligible for the economic hardship or unemployment deferments and will only be eligible for up to 9 months of many forbearances in a 2 year period.

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