Major changes to federal student loans [what they mean for you]

On July 4, 2025, a massive budget and tax bill was signed into law, bringing big changes to federal student loans. The goal of the changes in student loans is to simplify the repayment system. The impact on borrowers — especially those navigating repayment, borrowing limits and forgiveness — might feel anything but simple.

Let’s walk through the key changes and what they might mean for you or your loved ones.

Fewer repayment plans, longer time frames

Old plans: Borrowers could choose from seven different plans, including the Saving on a Valuable Education (SAVE), Pay as Your Earn (PAYE) and Income-Based Repayment (IBR) plans.

New plans: Starting July 1, 2026, new borrowers (those with no previous federal student loans) will choose from just two when their loans enter repayment:

• A Standard Repayment Plan (fixed payments over 10-25 years).
• A new Repayment Assistance Plan (RAP), with payments based on 1%-10% of Adjusted Gross Income (AGI) instead of “Discretionary” income (which will translate to higher payments), and with a forgiveness timeline of 30 years instead of 25 under the old plan.

If you’re currently in a plan like SAVE or PAYE, you have until July 1, 2028, to switch to a different repayment plan (like the Income Based Repayment plan), or you will be automatically placed in RAP at that time.

What this means: Repayment might feel simpler, but lower-income borrowers could face higher payments and a longer journey to loan forgiveness. Payments under RAP will be higher than those under the IBR plan, which won’t be available to those who borrow loans beginning July 1, 2026. There might be implications for people working toward Public Service Loan Forgiveness (PSLF) as well. Payments under the previous standard 10-year repayment plan currently count as qualifying payments toward PSLF, but payments under the new longer-term Standard Repayment Plan won’t. 

Interest and forgiveness: New rules 

• Starting August 1, 2025, interest will resume for SAVE plan borrowers after a legal pause.
• RAP includes a helpful provision: unpaid accrued interest is waived if you make your payments on time.

What this means: Budgeting for interest again is important — but making consistent payments under RAP could help you avoid interest ballooning over time.

Borrowing limits for graduate and Parent PLUS loans

Starting July 1, 2026, there will be new borrowing caps for graduate and professional students, as well as for parents who choose to take out loans for their children. (You can find the caps for undergraduate borrowers here.)

Loan Type	Annual Limit	Aggregate*	Lifetime Limit
Graduate Students	$20,500/year	$100,000 (or $200,000 minus amounts borrowed as a graduate student)	$257,500**
Professional Degrees	$50,000/year	$200,000 (or $200,000 minus amounts borrowed as a graduate student)	$257,500**
Parent PLUS Loans	$20,000/year	N/A	$65,000***

* Aggregate refers to the total cumulative amount of federal student loans a borrower is allowed to receive over the course of their education. There are different caps for undergraduate students and graduate and professional students.

** $257,500 is combined undergraduate (Subsidized and Unsubsidized) plus graduate/professional loans (Unsubsidized).

** $65,000 lifetime limit is per dependent student.

What this means: Families might need to explore private loans or alternative funding sources, which often come with fewer protections. The interest rate on private loans can also be higher than federal student loans.

Limits on pausing payments

Starting with new loans in 2027:

• Economic hardship and unemployment deferments will be eliminated.
• Forbearance will be capped at nine months within any 24-month period.

What this means: Planning ahead — especially during career transitions or life challenges — will be more important than ever.

Pell Grant updates

• Pell Grants will no longer be available for students receiving full scholarships.
• Eligibility formulas have tightened for middle- and higher-income families.
• On the plus side, short-term training programs (eight or more weeks) now qualify.

What this means: Aid will shift toward workforce programs, but students pursuing traditional degrees might need to supplement aid in new ways.

For more details on the student loan program changes, read this document from the U.S. Department of Education.

What you can do now

If you’re feeling overwhelmed, you’re not alone. We’re here to provide support as you navigate these changes. We walk with you — not just going over the numbers together — but discussing the information and options so you can make decisions that fit your particular financial situation. 

We can meet with you and help you:

• Revisit your loan repayment strategy.
• Check your eligibility for the Income Based Repayment plan and/or loan forgiveness programs.
• Budget for resumed payments, whether due to the end of the payment pause or a defaulted loan.

Please note: Effective July 1, 2025, our Student Loan Counseling has a $125 fee for service.

Call 888.577.2227 to schedule an appointment with one of our trusted, certified financial counselors.

 

Author Shannon Doyle is program manager for partnerships and education with LSS Financial Counseling.