President Trump has signed off on an overhaul of the federal student loan system that will affect the lives of many of the United States’ nearly 43 million borrowers.
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The landscape of federal student loans in the U.S. has undergone a major transformation with President Trump’s recent endorsement of the One Big Beautiful Bill Act. This comprehensive reform is set to impact almost 43 million borrowers nationwide, introducing new borrowing limits and a significant reduction in repayment options.
Effective July 4, the law brings sweeping changes to the existing student loan system, including tighter borrowing limits and fewer repayment plans. This development follows months of deliberation in Congress, culminating in a Senate compromise that has now become law.
Discontinuation of President Biden’s SAVE Plan
The SAVE plan, recognized for its generous terms, is about to be phased out. This plan offered low payments and expedited loan forgiveness, but it faced criticism for being overly generous. Preston Cooper from the American Enterprise Institute remarked, “For all practical purposes, I would say SAVE is just kind of dead at this point.”
Starting August 1, the U.S. Education Department announced that borrowers under the SAVE plan will see interest resume on their loans. Although payments aren’t required yet, many borrowers might opt for different plans to avoid interest accrual.
Concerns have been raised about the department’s capability to manage this transition, given significant staff cuts. Roxanne Garza from EdTrust highlighted potential backlog issues due to the late announcement regarding interest resumption.
New Borrowing Limits for Future Loans
Graduate students and parents will face new borrowing caps from July 1, 2026. While undergraduate limits remain unchanged, graduate students will encounter a cap of $20,500 annually and a lifetime limit of $100,000. Professional degrees have different limits, with borrowing capped at $50,000 per year and a lifetime limit of $200,000.
Parents using parent PLUS loans will be restricted to $20,000 annually, with an aggregate cap of $65,000 per child. Additionally, a new lifetime borrowing limit of $257,500 per person has been set for combined undergraduate and graduate loans.
Revamped Repayment Options
Two new repayment plans will replace the existing seven options. The standard plan offers a repayment term of 10 to 25 years, based on the debt amount. Borrowers with larger debts can expect longer repayment periods.
The Repayment Assistance Plan (RAP) will provide an income-based repayment option, with payments calculated as a percentage of adjusted gross income (AGI). Monthly payments will start at $10 for those earning $10,000 or less, with a maximum of 10% of AGI for incomes above $100,000.
RAP also introduces benefits such as waiving unpaid interest and reducing principal balances for lower-income borrowers. However, it extends loan forgiveness to 30 years, a significant departure from previous plans.
While RAP is designed to aid borrowers, some worry that the minimum payment requirement could lead to defaults among low-income borrowers. EdTrust’s Garza expressed concerns that the $10 monthly payment might push more borrowers into default.
Existing Loan Forgiveness Options
For current borrowers, the Income-Based Repayment (IBR) plan remains an option until June 30, 2026. IBR offers forgiveness after 20 or 25 years, depending on the loan’s age. However, the Education Department has paused processing loan forgiveness under IBR due to ongoing legal issues with the SAVE plan.
Borrowers making payments beyond their eligibility for forgiveness will receive refunds, according to the department.
This article was originally written by www.npr.org
