The federal student loan system is undergoing its biggest shift in decades. The One Big Beautiful Bill Act, signed on July 4, 2025, is transforming long-standing lending practices. As a result, new rules set limits on how much you can borrow and how repayment will work.
If you plan to borrow for school or already have loans, this guide explains the upcoming changes and their impact, helping you make informed decisions.
Quick Insights
- Federal borrowing will no longer match the full cost of attendance. Parent PLUS and Grad PLUS are capped or eliminated, significantly changing how families and graduate students finance education.
- A single income-driven plan (RAP) will redefine repayment. RAP sets a $10 minimum payment, uses a bracket system tied to AGI, waives unpaid interest, and extends forgiveness to 30 years, creating a very different repayment landscape.
- Three major IDR plans are ending. SAVE, PAYE, and most versions of ICR will be phased out by 2028, resulting in millions of borrowers shifting to RAP or a revised IBR plan.
- Program classification will matter more than ever. Only a handful of “professional programs” qualify for higher borrowing limits, leaving many expensive degrees (such as nursing and social work) with lower federal borrowing caps.
- Interest resumes for SAVE borrowers in 2025, new caps and RAP start in 2026, and major plan closures occur in 2028.
Before we dive into the new Federal Student Loan rules, let’s first recap the big picture and understand why this major shift is taking place. This context will help clarify the reasons behind the upcoming changes.
The changes to federal student loans stem from the One Big Beautiful Bill Act. This law marks a major break from the old system that many Americans are accustomed to: students and parents borrowing up to the full cost of attendance at almost any school.
The system offered flexibility to many families. However, it also pushed the debt levels higher year after year. So lawmakers argue that the system needs limits to keep borrowing in check and prevent balances from spiraling out of control.
As a solution, the Trump administration rolled out a new structure to reset federal lending. These changes focus on three major areas: loan limits (particularly on Parent PLUS and graduate borrowers), the Grad PLUS program, and the current mix of income-driven repayment plans.
The old framework stays mostly in place through June 30, 2026. After that point, the first wave of new rules goes into effect. Starting on July 1, 2026, new borrowers will face updated loan caps and a new repayment plan called RAP, while existing borrowers will shift more gradually. By July 1, 2028, most people in SAVE, PAYE, or ICR will move to RAP or a revised version of IBR. Once this shift is complete, the new system will become the new norm for nearly everyone with federal loans.
Now that you have the context, let’s look at one of the most important elements—borrowing limits. What are the new borrowing limits, and what can you actually get?
Undergraduate borrowing limits remain mostly unchanged, but parents and graduate students face reduced options. Previously, Parent PLUS and Grad PLUS loans allowed borrowers to borrow up to the full cost of attendance. With the OBBB, this is no longer an option.
Starting July 1, 2026, the maximum amount any parent or combination of parents can borrow is $20,000 per year and $65,000 total per student. That said, if you’re sending a student to a private university that charges $75,000 a year, you may be looking at an annual shortfall of $20,000 or more. This new reality will likely influence which schools you’ll consider for your child to attend, or fill the gap with private loans or savings.
For graduate and professional students, the change will hit much harder. Grad PLUS loans will end for new borrowing on July 1, 2026. In their place, the federal government sets fixed borrowing caps for graduate study:
- Graduate students in non-professional programs can borrow up to $20,500 per year and $100,000 total.
- Students in designated professional programs (medicine, law, dentistry, veterinary medicine) can borrow up to $50,000 per year and $200,000 total.
- Across all degrees combined, the overall federal borrowing limit becomes $257,500.
Take note: the definition of “professional program” is critical here, as only a few specific fields qualify for the higher limits. Many expensive programs you might expect to be eligible for actually don’t. For example, nursing, social work, engineering, and most allied health programs fall under the regular graduate limits. Please check the Federal Student Aid website or your school’s financial aid office to confirm whether your program qualifies for the higher limit.
With borrowing limits clarified, it’s time to turn to another major update: the repayment system. What is the new repayment system (RAP), and what does it mean to you as a new or existing borrower?
RAP becomes the main income-driven plan for new loans issued after July 1, 2026. Instead of several plans, borrowers choose RAP or updated IBR. Existing borrowers will gradually move to RAP as other plans phase out.
RAP uses a bracket system based on adjusted gross income (AGI): you pay 1% to 10% of your AGI. There’s no protected income zone like the current plans.
- You pay a set percentage of your AGI based on your income bracket. No portion of income is protected like in SAVE, PAYE, or ICR.
- Divide the annual payment by 12 for your monthly amount.
- Subtract $50 for each dependent child from the monthly amount.
- The minimum payment is $10; there is no $0 payment option under RAP.
Example: Earning $25,000 places you in the 2% bracket. That’s $500/year, or about $41.67/month with no dependents.
If your payment doesn’t cover interest, the unpaid interest is waived. If less than $50 goes to the principal, the government makes up the difference. These features keep balances from ballooning.
RAP lasts 30 years (360 payments), after which any remaining balance is forgiven. This is longer than current income-driven plans.
After reviewing the RAP details, you may be familiar with repayment plans such as SAVE, PAYE, and ICR. As these are phased out, what should you know to prepare?
If you’re currently enrolled in the SAVE plan, you’re facing immediate changes. Due to legal challenges and policy reversals, the interest freeze that has protected millions of SAVE borrowers will end on August 1, 2025. Even if you’re among the 7 to 8 million people currently in forbearance with no interest accruing, that protection disappears in August.
By July 1, 2028, SAVE, PAYE, and most versions of ICR will no longer be available for ongoing use. Borrowers will move into RAP or the updated IBR plan. For borrowers working toward Public Service Loan Forgiveness, they will continue to earn credit under RAP, though plan changes may affect how their payments are counted.
Suggestion: If you’re in SAVE now, review your servicer’s full payment history and confirm your progress toward forgiveness. Then compare how IBR and RAP would affect you based on your income, household size, and loan amounts.
Here are some strategic plans that every borrower could apply
The new rules impact borrowers differently. More than ever, you must understand these changes and adapt to avoid surprises. Every borrower—whether preparing for college, in school, or repaying—needs a tailored plan as the system transitions.
Here’s what we suggest:
- For parents and high school students, step back and reassess how you build your college lists. Since Parents PLUS loans will no longer cover the full gap between aid and tuition, attending dream schools (even the most expensive ones) may no longer be realistic with federal loans alone. It’s a sad reality, but choosing a college now involves more than academic fit and application strength—price tags play a much bigger role than before. Students and families may need to rely more on school-based aid, in-state options, or private loans with stricter terms. So, running the numbers early is crucial, especially since past borrowing options will no longer be available.
- Current undergraduates have some time before the borrowing caps shift, but planning still matters. If you’re considering graduate school, you should carefully review your loan usage now. That’s because keeping undergraduate debt lower can free up private borrowing later, especially if you’re entering programs that fall under the $100,000 federal graduate cap. Planning early gives you greater flexibility once the new limits take effect.
- Graduate students, pay close attention to which loans fall under the old rules and which fall under the new system. Many will end up with a mix of both (we’re sure of that). Because consolidating loans can reset forgiveness timelines or change which repayment plans you qualify for, it’s essential to avoid consolidating automatically. Instead, review each loan separately and understand how consolidation could affect your long-term repayment path.
- Recent graduates should review their status under SAVE or another income-driven repayment plan. As SAVE winds down and interest resumes in 2025, payments may increase. This is a good time to compare what you would pay under IBR and RAP and consider which plan aligns with your income and long-term goals. Acting early can help you avoid any surprises during the transition.
- Parent PLUS borrowers face a more complicated path. RAP will not be available for Parent PLUS loans, and the only way to enter an income-driven plan is to consolidate into ICR and then switch to IBR. Because these steps require specific timing, make sure to map out your strategy now. Understanding the process ahead of time will help you avoid missed windows or repayment problems later.
Wrapping up and preparing for the new normal
The new rules signal a broader shift in how the government views the role of federal student loans. Lawmakers argue that unlimited borrowing has driven up tuition and placed too much risk on taxpayers. By setting firm limits, they hope to slow the rise in college costs and make the system more predictable.
Critics worry that the changes will put more pressure on middle- and lower-income families. They also warn that students may be discouraged from entering fields like nursing or social work, which require costly degrees but offer modest salaries.
Regardless of where you fall in this debate, it’s essential to adapt to the rules now in place. Keep a detailed record of your loans, including balances, interest rates, disbursement dates, servicers, and repayment plans. Set reminders for significant dates such as August 1, 2025, and July 1, 2026. Remember that the system you started in may not be the one you finish in.
This is one of the most significant shifts in federal student lending in a generation. With careful planning and an understanding of the new rules, you can navigate this transition with greater clarity and fewer surprises.
