SouthernWorldwide.com – Significant alterations are set to transform the student loan system on July 1, impacting borrowing limits and repayment choices for Americans.
These adjustments stem from the One Big Beautiful Bill Act, enacted last year. The Department of Education has presented these changes as a means to simplify the existing student loan framework, which currently features seven repayment plans, and to address the substantial student loan debt, estimated at nearly $1.9 trillion according to LendingTree.
“We are observing the most extensive modifications of this magnitude in a considerable period,” stated Sarah Austin, a policy analyst with the National Association of Student Financial Aid Administrators, a non-profit organization.
Borrowers participating in the Biden-era Saving on a Valuable Education (SAVE) plan will also experience considerable shifts as the administration moves to phase out the program and transition borrowers to new repayment structures. Payments for the approximately 7.2 million individuals on the SAVE plan have been on hold for two years due to legal proceedings concerning the program’s future.
Experts advise borrowers to consult with their loan servicers, and students should seek guidance from their financial aid offices during this transition. Online tools, such as the repayment plan calculator provided by the Education Debt Consumer Assistance Program in New York, can also assist in determining the most suitable repayment option.
Given the upcoming changes, it is crucial for borrowers to remain attentive to communications from their loan servicers, according to Winston Berkman-Breen, legal director of the advocacy group Protect Borrowers.
“It’s perfectly understandable if you haven’t paid close attention to your loans for several years. However, now is the critical time to ensure your contact details are current,” he emphasized. “Be sure you have your login credentials for studentaid.gov.”
Here’s a breakdown of what borrowers need to know.
New Limits on Student Borrowing
The One Big Beautiful Bill Act introduces new regulations that will impose stricter limits on the amount students can borrow for their education.
A key change affects the Parent PLUS loan program, which enables parents to finance their child’s undergraduate studies. Previously, parents could borrow up to the cost of attendance. However, effective July 1, there will be an annual cap of $20,000 and a total limit of $65,000 per student for these loans.
Graduate students and those pursuing professional degrees will also face new borrowing limitations.
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Graduate students will still be able to borrow up to $20,500 annually. However, a new aggregate limit starting July 1 will restrict their total borrowing for a degree to $100,000.
The new legislation also impacts individuals pursuing professional degrees, which, according to Department of Education guidelines, include fields such as pharmacy, veterinary medicine, chiropractic, law, medicine, optometry, osteopathic medicine, podiatry, theology, and clinical psychology. Students in these areas will be limited to $50,000 per year and a lifetime total of $200,000.
This has generated significant criticism from some professional groups, such as nursing, whose advocates argue it could exacerbate the existing nurse shortage. The Education Department has stated that 95% of nursing students will not be affected by the borrowing cap.
Other graduate students will see changes on July 1, as new borrowers will be ineligible for Graduate PLUS loans, which previously allowed borrowing up to the cost of attendance. Existing Grad PLUS borrowers will be grandfathered in and retain access to these loans, as reported by EdSource.
Furthermore, with limited exceptions, any individual obtaining a loan on or after July 1 will be subject to a lifetime borrowing limit of $257,500, as per the Education Department.
“This limit is per borrower, encompassing both undergraduate and graduate studies throughout your educational journey,” Berkman-Breen clarified.
Repayment Options Are ShrinkingNew Loan Borrowers
Starting July 1, individuals taking out new federal student loans will have only two repayment options: the Tiered Standard Plan and a new income-driven repayment plan known as the Repayment Assistance Plan (RAP).
Borrowers with existing loans who take out a new loan after July 1 will also be subject to these new regulations. Once the new loan enters repayment, all of their federal loans must be managed under one of the two new plans, Austin explained.
Current Borrowers
For current borrowers who do not take out new loans after July 1, the existing repayment options remain accessible. These include:
- Standard Repayment Plan
- Extended Repayment Plan
- Graduated Repayment Plan
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Income-Contingent Repayment (ICR)
Borrowers also have the option to enroll in the new Repayment Assistance Plan (RAP), according to Austin.
However, the One Big Beautiful Bill Act mandates the phase-out of the PAYE (Pay As You Earn) and ICR (Income-Contingent Repayment) plans. Borrowers enrolled in these programs must transition to another repayment plan by July 1, 2028.
“They can choose from the existing plans (standard, extended, graduated, IBR) or enroll in RAP if it is after July 1, 2026,” Austin stated. “They will not be eligible for the new Tiered Standard Plan.”
Individuals enrolled in the standard, extended, graduated, or IBR plans can maintain their current status as long as they do not take out new loans. Austin confirmed this, noting that “Any of those existing plans that do not sunset in 2028 can be continued until loans are paid off, provided no new loans are taken out on or after July 1, 2026.”
SAVE Borrowers Face a Separate Transition
The SAVE plan is scheduled to be phased out in July 2028 under the One Big Beautiful Bill Act. However, borrowers currently enrolled in SAVE will need to select a new repayment plan prior to this deadline, as indicated by experts.
Loan servicers are expected to begin notifying SAVE borrowers around July 1, requiring them to choose a new repayment option within 90 days, Austin reported.
“If no action is taken within this 90-day period, the loan servicer will automatically place them in the standard plan,” Austin added.
SAVE borrowers have the option to switch to RAP or one of the remaining existing repayment plans. However, those who opt for PAYE or ICR will need to switch again before July 1, 2028, when these plans are eliminated.
Pell Grant Rules Are Changing
The new legislation also introduces stricter eligibility criteria for the Pell Grant program, the primary federal financial aid for low-income students. Students who receive non-federal grants or scholarships that cover or exceed their educational costs will no longer qualify for additional Pell Grant funding, according to Austin.
The One Big Beautiful Bill Act also addresses what Austin referred to as the “Pellionaire loophole,” which previously allowed individuals with low incomes but substantial assets to receive Pell Grants.
For instance, under the current system, a borrower with $1 million in assets but an annual income of $10,000 could technically be eligible for a Pell Grant, Austin explained. Borrowers report assets, including cash, savings, checking accounts, business net worth, and investment net worth, when completing the FAFSA, the application for Pell Grants.
The law also expands Pell Grant eligibility to students enrolled in shorter-term workforce training programs. Programs in fields such as nursing assistance, early childhood education, and automotive mechanics may now qualify under the revised rules.
Previously, workforce programs typically needed to be at least 15 weeks long and include 600 clock hours of instruction to be eligible for Pell Grant funding.
“Beginning on July 1, 2026, students will be eligible to receive Pell Grants for enrollment in high-quality, short-term educational programs that prepare them for high-skill, high-wage, and in-demand jobs,” the Education Department stated in a recent press release.
