New Repayment Plans, Borrowing Caps, and Higher Rates
The biggest overhaul of federal student loans in a generation takes effect today. Under the One Big Beautiful Bill Act, borrowers who take out federal loans on or after July 1, 2026 face fewer repayment options, hard borrowing caps, and slightly higher interest rates.
While many of these changes apply to new loans going forward, some borrowers do have choices to make. For example, borrowers in the SAVE forbearance will have to start making decisions to change repayment plans.
It's important to remember that current borrowers keep their existing fixed interest rates and access to legacy plans like IBR — but anyone borrowing for the coming school year is entering a very different system.
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Two Repayment Plans Moving Forward
New borrowers after July 1 get just two choices of repayment plan. The Tiered Standard Plan sets fixed payments over 10 to 25 years based on balance. The Repayment Assistance Plan (RAP) is the lone income-driven option, charging 1% to 10% of adjusted gross income, with a floor of $10 a month for the lowest earners.
RAP waives any monthly interest above the required payment and adds a principal-matching benefit so low-income balances still shrink. Parents can cut $50 per month for each dependent. The tradeoff: forgiveness doesn't come until 30 years of payments, up from 20 or 25 under older income-driven plans.
Existing borrowers who don't borrow again or consolidate their loans continue to maintain access to the "legacy" repayment plans of IBR, PAYE, and ICR, as well as the legacy standard plans (Standard, Extended, Graduated). However, PAYE and ICR sunset in June 2028 at the latest.
Borrowers are encouraged to use The College Investor's Student Loan Calculator to know the impact of these plans.
New Student Loan Caps
Graduate students can no longer borrow up to the full cost of attendance. New limits are $20,500 a year and $100,000 in total, and the Grad PLUS loan is eliminated entirely.
Students in professional programs get a higher ceiling ($50,000 a year and $200,000 aggregate) but there has been some contention on what counts as a professional degree. The original list of professional degrees was just 11 fields, but a judge paused that and the government has temporarily expanded the list to 29 fields.
Parent PLUS borrowing is now limited to $20,000 per year and $65,000 total per child, replacing the old cost-of-attendance model.
New Parent PLUS loans also can't enroll in RAP (the only income-driven plan for post-July loans) and as a result, have no pathway to Public Service Loan Forgiveness if they have not previously consolidated before June 30, 2026.
The SAVE Wind-Down Begins
The Biden-era SAVE plan has been both struck down by the courts and has been legislatively eliminated via the OBBBA. Its roughly 7 million borrowers, whose interest has been accruing since August 1, 2025, will start receiving 90-day notices to pick a new plan as early as today.
The Under Secretary of Education Nicholas Kent has made clear that notices will go out in waves, and borrowers will have their own individual times. We have an estimate of what the SAVE timeline will look like here.
Miss your deadline and you're auto-enrolled in a Standard or Tiered Standard Plan.
Interest Rates Rise For New Student Loans
New student loans first disbursed between July 1, 2026 and June 30, 2027 carry higher interest rates — up about 13 basis points across the board:
- Undergraduate: 6.52% (from 6.39%)
- Graduate Direct: 8.07% (from 7.94%)
- PLUS loans: 9.07% (from 8.94%)
Federal loan interest rates are fixed for the life of the loan, so existing borrowers see no change. Only new money borrowed after today gets the higher rate. However, these rates are near the historical interest rate highs.
How This Connects
For a system already carrying more than $1.7 trillion in federal student debt, the shift narrows the safety net for future borrowers while capping how much they can take on in the first place.
Families planning for the coming year should model How Much Student Loan Debt You Can Afford before borrowing. For those in SAVE forbearance, make sure you check your notice deadlines closely as the auto-enrollment fallback may not be the cheapest option.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.