Student loan update: Full list of rule changes coming in …

The upcoming changes to the U.S. federal student loan system, effective July 1, involve significant reforms affecting over 40 million borrowers. Key alterations include the launch of a new Repayment Assistance Plan (RAP), which will have payments ranging from 1% to 10% of income, along with a 30-year forgiveness timeline. The SAVE plan will conclude, forcing around 7 million borrowers to switch to different plans, potentially leading to higher payments. Stricter borrowing limits will be imposed on Parent PLUS loans and graduate students, and Grad PLUS loans will be eliminated for new borrowers. Additionally, new eligibility criteria for Public Service Loan Forgiveness (PSLF) will be established, and borrowers enrolled in auto-pay will receive a 1% interest rate reduction. Borrowers must stay alert for notices regarding their new repayment options to avoid automatic placement into standard plans with less favorable terms.

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Why It Matters

More than 40 million Americans hold federal student loan debt, and experts say the July 1 changes could significantly alter monthly payments, borrowing options and long-term repayment paths.

Some borrowers may see higher monthly payments or fewer forgiveness options, while new borrowers will face stricter limits on how much they can borrow.

Education Secretary Linda McMahon, center, speaks alongside Health and Human Services Secretary Robert F. Kennedy Jr., left, and Housing and Urban Development Secretary Scott Turner, right, during a proclamation signing by U.S. President Donald Trump in the Oval Office of the White House on May 5 in Washington, D.C. (Photo by Anna Moneymaker/Getty Images)

Full List of Student Loan Changes Taking Effect July 1

Newsweek compiled the major rule changes scheduled to take effect on July 1.

1. New Repayment Assistance Plan (RAP) Launches

A new income-driven repayment option, the Repayment Assistance Plan (RAP), will be introduced.

Payments are set at roughly 1 percent to 10 percent of income, depending on earnings.
Forgiveness is available after 30 years of payments.
It also includes features like interest support and principal reduction incentives.

For many borrowers, RAP replaces existing income-driven plans, but borrowing costs could end up higher in the long run.

"With many of those plans officially being phased out, July 1 will mark the start date for the alterations passed through the One Big Beautiful Bill Act," Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek.

"The most relevant change is for borrowers that were on a repayment assistance plan. Starting next week, there will be one consolidated income-based repayment plan, and unlike past efforts, a minimum payment will be required each month."

2. SAVE Plan Ends and Borrowers Must Switch

The Biden-era SAVE repayment plan is ending, following court rulings and a federal settlement.

Around 7 million borrowers must transition to a new plan, and loan servicers will begin sending 90-day notices starting July 1.

Borrowers who don't choose a plan will be automatically moved to a standard repayment option, and monthly payments are expected to rise for many borrowers moving out of SAVE.

3. Most Income-Driven Plans Begin Phasing Out

Several other legacy repayment plans will stop accepting new borrowers.

In addition to SAVE, the PAYE and ICR plans will close to new enrollment on July 1. These plans will be fully phased out by 2028.

Ultimately, IBR (Income-Based Repayment) remains the core legacy option for existing borrowers.

For new borrowers, RAP and a standard plan will be the primary options.

4. Stricter Borrowing Limits for Students and Parents

Also beginning in July, new caps will limit how much borrowers can take out in federal loans.

Parent PLUS loans:

Capped at $20,000 per year
$65,000 lifetime limit per student

Graduate and professional students:

Graduate borrowing limited to around $20,500 annually
A new lifetime cap will prohibit them from taking out more than $100,000

That means some families may need to rely on private loans to cover remaining costs.

"The higher interest rates being charged will come at a significant cost for those borrowing money, and the caps on the amounts borrowed will force many to forgo higher learning or take on private loans with higher rates," Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, told Newsweek.

5. Grad PLUS Loans Eliminated for New Borrowers

Graduate students will no longer be able to take out Grad PLUS loans for new programs.

The program effectively ends for new borrowers starting July 1, but existing borrowers may continue under current terms in some cases.

6. Changes to Public Service Loan Forgiveness (PSLF)

New rules will also affect the PSLF program, including updated criteria for which employers qualify.

Some organizations may no longer count toward forgiveness eligibility, as Education Secretary Linda McMahon will now have authority to disqualify any employers found to have a "substantial illegal purpose."

7. New Interest Rate Incentive for Auto-Pay

The Department of Education also announced the additional incentive of a 1 percent interest rate reduction for borrowers enrolled in auto-pay.

"The Trump Administration is making student loan repayment easier than ever, and borrowers should not wait to take advantage of this temporary interest rate reduction to stay on track for key student loan benefits," said Under Secretary of Education Nicholas Kent in a statement. "No matter your age or college credential, we want to make sure that borrowers can understand their options and choose a repayment option that works best for them."

The rate will be available through June 30, 2028, for eligible borrowers.

What Happens Next

Borrowers, especially those currently enrolled in SAVE, are expected to receive notices beginning July 1 and will typically have 90 days to choose a new repayment plan.

Failing to act could result in automatic placement into a standard plan, which may carry higher monthly payments and fewer benefits.

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Student loan update: Full list of rule changes coming in July

Top Stories:

Why It Matters

Full List of Student Loan Changes Taking Effect July 1

1. New Repayment Assistance Plan (RAP) Launches

2. SAVE Plan Ends and Borrowers Must Switch

3. Most Income-Driven Plans Begin Phasing Out

4. Stricter Borrowing Limits for Students and Parents

5. Grad PLUS Loans Eliminated for New Borrowers

6. Changes to Public Service Loan Forgiveness (PSLF)

7. New Interest Rate Incentive for Auto-Pay

What Happens Next