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Federal student loans are undergoing an overhaul. Starting July 1, new students who take out a loan will have fewer repayment-plan options, and some families who already have loans will be forced to select a different repayment plan.
Parents who take out federal loans to help their children pay for college may be subject to new borrowing limits. And for those starting a new graduate or professional degree, Graduate PLUS loans will no longer be available. The One Big Beautiful Bill Act (OBBBA), signed into law last year, ushered in these changes.
If you or your child is already paying off student loans, or if your family is planning to borrow for college in the future, there’s a good chance some of these updates will affect you. Here, we offer details on what you should know, as well as strategies for families to make the best choices.
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The new student loan repayment plans
The OBBBA narrows to two the options for students taking out a loan on or after July 1. One is an income-based plan known as RAP (Repayment Assistance Plan). Under this new plan, payments range from 1% to 10% of the borrower’s adjusted gross income, with a minimum payment of $10 a month. Lower-income borrowers pay a smaller percentage; the maximum 10% applies to those with an AGI of $100,000 or higher, and there’s no dollar limit on the monthly payment. RAP deducts $50 from the monthly payment for each of the borrower’s dependents. After 30 years, any remaining balance is forgiven.
The other option for new borrowers is the Tiered Standard Plan, with fixed payments over the course of 10, 15, 20 or 25 years, depending on your federal loan balances. If your loan balances add up to less than $25,000, the repayment term is 10 years. For loans of $100,000 or more, the term is 25 years. Borrowers may prefer this option if they want fixed, predictable payments, if they would like to pay off their loan more quickly than they might with RAP, or if their payment with this plan is lower than it would be with RAP.
The Public Student Loan Forgiveness program remains in place. Those who have direct loans and work for a government or nonprofit employer, such as firefighters, teachers and first responders, can have remaining balances forgiven after 10 years of repayments on either plan. To minimize the amount they pay before forgiveness, those who may qualify should evaluate each year whether RAP or the Tiered Standard Plan results in a lower monthly payment.
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Choices for those who borrowed before July 1. The OBBBA brings an end to three income-based repayment options: SAVE (Saving on a Valuable Education), PAYE (Pay As You Earn) and ICR (Income-Contingent Repayment). Borrowers who are in one of these plans will have to choose among the remaining options — and those on the SAVE plan will have to make a decision soon.
The SAVE plan was designed to be more affordable than other income-based plans, in part by preventing unpaid interest from accumulating enough to cause the loan balance to grow. Borrowers enrolled in SAVE will need to change plans in the coming months, with their servicer providing information on the deadline. They can choose among existing plans, but if they go with PAYE or ICR, they’ll have to switch again before those plans sunset in 2028. Starting July 1, 2026, SAVE borrowers can also select among the new repayment-plan options.
Before July 1, 2028, borrowers on the PAYE or ICR plan will have to switch to the new RAP or Tiered Standard Plan, or they can choose IBR (Income-Based Repayment), the sole remaining option among existing income-based plans. IBR caps monthly payments at 10% or 15% of your discretionary income, depending on when you first took out the loan. Payments can be as low as $0, with a repayment time frame of 20 to 25 years.
Because IBR limits your payment based on income, it may be the best choice for borrowers with higher income and debt levels. For instance, with $100,000 in loans and a salary of $80,000, the monthly payment on IBR would be $334. For a RAP borrower with no dependents, it would be $534.
Borrowers with lower debt and income may be better off with RAP. For example, someone with $30,000 in debt and $50,000 in income who has two kids would have a $25 payment with RAP, compared with $84 with IBR.
Student loan strategies for parents
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Parents who take out a PLUS loan before July 1 can borrow up to the cost of their child’s attendance, minus the amount of any grants, scholarships and federal loans made directly to the student. For loans disbursed on or after July 1, parents can borrow up to $20,000 per student annually, with a total limit of $65,000.
If your student was enrolled in school before the 2026–27 school year, you can maintain access to Parent PLUS loans under the previous borrowing standard for three years, as long as your child’s school and degree type don’t change and they don’t take a semester-long break from classes other than for an approved medical reason.
If your child is scheduled to start school this fall, you may be able to access Parent PLUS loans under the pre–July 1 borrowing limit if they enroll in classes for the summer 2026 session. If you go this route, apply as early as possible for summer financial aid on the 2025–26 Free Application for Federal Student Aid, or FAFSA (the federal deadline is June 30, 2026). The courses your student takes must count toward their degree and add up to at least half-time status.
Before you take on debt to fund your child’s education, however, make sure you have a solid plan for your own financial security. “I discuss holistically with clients how student loans will affect their retirement, vacations, ability to buy a new home and other personal life goals before they decide how much to borrow,” says Jack Wang, a wealth adviser and host of the Smart College Buyer podcast.
To prevent both students and parents from getting in over their heads, families may need to consider such cost-cutting strategies as focusing on affordable schools or having the student start at a community college and then switch to their preferred school later.
Before you take on debt to fund your child’s education, make sure you have a solid plan for your own financial security.
Repaying parent loans. Under the rules in effect before July, parents have a few ways to repay their PLUS loans, including a plan with fixed monthly payments for 10 years. Borrowers who owe more than $30,000 can use a plan that spreads fixed payments over 25 years.
Parents who consolidate PLUS loans from different school years into a single federal loan are also eligible for an income-based plan, which could lower their payments, with any remaining balance forgiven after 25 years. But starting in July, new parent borrowers have access only to the standard repayment plan, with fixed payments that are spread over 10 to 25 years.
If you act quickly, you may still have time to consolidate your PLUS loans and then enroll in ICR before July, at which point the new law cuts off this strategy. Even if your payments are manageable now, you may want to do this if income-based payments could benefit you at some point— say, because you expect to be paying off the loans in retirement, when your income may be lower than it is now. As long as you make one payment in ICR first, you can then change programs to IBR.
Note that if you take out a new Parent PLUS loan on or after July 1, you’ll lose access to the income-driven repayment option, even on any loans you consolidated before that deadline. To avoid that scenario — and reduce your borrowing — consider other funding options. Most schools offer low-fee tuition-payment plans that allow you to make payments throughout the year.
Student loan updates for graduate and professional students
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Until July 1, students earning a graduate or professional degree can access two types of federal student loans: Unsubsidized loans and Graduate PLUS loans. With unsubsidized loans, you must pay interest while you’re in school. These loans charge lower interest rates than Graduate PLUS loans, so borrowers should turn to unsubsidized loans first.
For students who can’t cover all their education expenses with unsubsidized loans, Graduate PLUS loans can bridge the gap up to the full cost of attendance. But starting July 1, borrowers can no longer take out Graduate PLUS loans. Students can still take out unsubsidized loans, but with some new caps on how much you can borrow.
Graduate students (including those earning a master’s degree as well as those in most PhD programs) will be subject to a lifetime cap of $100,000 for unsubsidized graduate loans; the annual limit is $20,500. For students in eligible professional programs, such as medical, dental, law and pharmacy school, the unsubsidized-loan limit is $50,000 annually. The lifetime limit, not including undergraduate loans, is $200,000.
Most schools offer low-fee tuition-payment plans that allow you to make payments throughout the year.
If you were enrolled in graduate or professional school before July 1 and haven’t taken out a federal student loan yet, consider getting one for the spring or summer session if you think you may need one in the next three years. If a direct loan is disbursed before July 1, 2026, you can keep borrowing Graduate PLUS loans for up to three years while completing your program. Taking out even a $100 loan gives you the option to borrow more later, if you need it.
Scheduled to start your graduate or professional program this fall? Call admissions and see whether you can apply for the summer 2026 session, starting your program early and potentially allowing you to get a Graduate PLUS loan before the July 1 deadline. Confirm it will not affect any other financial aid you’re scheduled to receive in the fall and spring terms.
You’ll need to enroll in enough summer coursework to be designated at least a half-time student (and apply for financial aid that is disbursed before July 1, 2026), to be grandfathered into the PLUS loan program, says Sarah Austin, policy analyst for the National Association of State Financial Aid Administrators.
Options beyond federal loans. With Graduate PLUS loans off the table, some borrowers may consider private loans. Generally, however, private loans don’t come with the same protections or income-driven repayment options that federal loans do, so you’ll need to weigh the decision carefully. And it’s best to limit your overall student debt as much as possible. A financial adviser can go over a post-graduation budget with you, factoring in your expected salary.
If you determine that you can afford to take on some private loan debt, consider national non-profits such as MEFA or EdvestinU, says student loan expert Colleen Krumwiede. These providers can offer options for borrowers who may not qualify for other loans because they have a thin credit history or don’t have a cosigner. She also recommends looking for lenders that specialize in certain majors. For instance, a lender that focuses on medical student needs may also lend money for residencies.
Check for state lending programs, too. “A small number of states already run their own student-loan programs, some dating back decades,” says Thomas Harnisch, vice president for government relations at the State Higher Education Executive Officers Association.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.