Starting July 1, significant changes to the student loan system will take effect under the One Big Beautiful Bill Act (OBBBA). These changes will impact how borrowers repay loans, borrowing limits, and the availability of certain programs.
Why It Matters
Over 40 million Americans hold federal student loan debt. The impending changes could substantially influence monthly payments and long-term financial commitments. Financial experts advise that inaction or incorrect plan choices might escalate costs or eliminate forgiveness options.
“July 1 marks the beginning of the changes implemented through the One Big Beautiful Bill Act,” said Alex Beene, a financial literacy instructor at the University of Tennessee at Martin.
The Biggest Changes Taking Effect July 1
1. The SAVE Plan Is Ending
The Saving on a Valuable Education (SAVE) plan will be discontinued. Approximately 7 million borrowers must switch to a new option. Loan servicers will start sending 90-day notices from July 1. Those who do not act will automatically move to a standard repayment plan with potentially higher payments.
2. A New Repayment System Consolidates Multiple Plans
The overhaul simplifies repayment options, but decreases flexibility. New borrowers will have two choices:
- Standard Repayment Plan (fixed payments)
- Repayment Assistance Plan (RAP)
RAP will be the main income-based option, with payments between 1-10% of income. Loan forgiveness will only occur after 30 years of payments, compared to the older 20–25 years timeline.
3. Fewer Choices for Existing Borrowers
Current borrowers are not required to switch immediately, but their options are dwindling. Some legacy plans remain temporarily, yet the IBR (Income-Based Repayment) plan is the only major one expected to last. Taking out new loans after July 1 might restrict options, with all loans converging into the new system.
4. Graduate PLUS Loans Are Eliminated
Grad PLUS loans, commonly used by graduate students, will not be available for new borrowers starting July 1. Previously, these loans allowed borrowing up to the complete cost of attendance.
5. New Caps on Borrowing Limits
Federal student loans will have stricter caps for the first time. Graduate programs have a $20,500 annual limit or $100,000 total, while professional degrees may see up to $50,000 annually or $200,000 total. Parent PLUS loans are limited to $20,000 annually and $65,000 per student lifetime.
“Higher interest rates will significantly impact those borrowing, pushing some to seek private loans with higher rates,” said Kevin Thompson, CEO of 9i Capital Group.
6. Changes to Public Service Loan Forgiveness (PSLF)
PSLF will also undergo updates, including revised criteria for eligible employers. Education Secretary Linda McMahon will have the authority to disqualify any employer involved in substantial illegal activities.
7. New Interest Rate Incentive for Auto-Pay
The Department of Education offers a 1% interest rate reduction for borrowers enrolled in auto-pay. This rate will be available until June 30, 2028.
“The Trump Administration is making repayment easier than ever,” said Under Secretary of Education Nicholas Kent. “Borrowers should consider the temporary interest rate reduction to benefit from key options.”
What Happens Next
July 1 marks the start for most borrowers. Notifications to switch plans will be issued throughout the summer. Borrowers typically have 90 days from notification to respond. Transitioning away from older plans will continue through 2028, when most legacy options will be phased out.