Millions of Student Loan Borrowers Face Major Changes Beginning July 1. Here’s What You Need to Know
Millions of Americans with federal student loans are seeing significant changes beginning July 1 as a sweeping overhaul of the federal student loan system takes effect. The changes affect both current borrowers and future students by introducing new repayment options, phasing out existing programs, tightening borrowing limits, and changing how some borrowers qualify for financial relief.
For many borrowers, the biggest immediate change is the end of the Saving on a Valuable Education (SAVE) repayment plan. Borrowers currently enrolled in SAVE will receive notices from their loan servicers directing them to select a different repayment option within 90 days. Those who do not make a selection by their assigned deadline will automatically be moved into a standard repayment plan, which could result in higher monthly payments for many households.
SAVE Plan Phased Out
The SAVE repayment plan, which lowered monthly payments for millions of borrowers based on income, is being phased out.
Borrowers currently enrolled in the program should watch for communications from their loan servicer explaining available repayment options and any required deadlines. Choosing a new repayment plan before the deadline may help borrowers avoid higher monthly payments.
New Repayment Options Begin
Beginning July 1, the federal government is introducing new repayment options for eligible borrowers.
One option is the Repayment Assistance Plan (RAP), an income-based repayment program that calculates monthly payments using a borrower’s adjusted gross income and family size. The plan also includes protections designed to prevent unpaid interest from increasing loan balances as long as borrowers make their required monthly payments.
Another option is the Tiered Standard Repayment Plan, which provides fixed monthly payments over repayment periods ranging from 10 to 25 years depending on the total amount borrowed.
New Borrowing Limits for Students
Students taking out new federal loans after July 1 will also see updated borrowing limits.
Graduate students will generally be limited to $20,500 annually with a $100,000 lifetime borrowing cap.
Students pursuing certain professional degrees, including law and medicine, may qualify for borrowing limits of $50,000 annually and $200,000 total.
Parent PLUS loans will now generally be capped at $20,000 per year per dependent student, with a $65,000 lifetime maximum.
The changes are intended to reduce federal borrowing while encouraging students and families to make informed decisions about education costs.
Existing Borrowers Should Watch for Notices
Current borrowers are not required to take immediate action simply because July 1 has arrived. However, those enrolled in the SAVE plan should closely monitor emails and mail from their loan servicer.
Borrowers will receive individualized deadlines and generally have at least 90 days to select a new repayment plan before automatic enrollment into another repayment option occurs.
Temporary Interest Rate Reduction
Borrowers who enroll in automatic payments may also qualify for a temporary 1% interest rate reduction, an incentive currently scheduled to remain available through June 30, 2028.
Those already enrolled in AutoPay will generally receive the benefit automatically.
What Borrowers Should Do
Financial experts recommend borrowers:
- Review all notices from their loan servicer.
- Compare available repayment plans before making a decision.
- Update income information if applying for an income-based repayment plan.
- Enroll in AutoPay if eligible for the temporary interest rate reduction.
- Contact their loan servicer with any questions before their repayment selection deadline.
While many of the new rules are now in effect, additional guidance and legal challenges could continue shaping portions of the federal student loan system in the months ahead. Borrowers are encouraged to monitor their StudentAid.gov account and communications from their loan servicer for future updates.
