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Major changes to the federal student loan system are taking effect today, July 1, affecting roughly 43 million American borrowers who collectively owe nearly $1.7 trillion. The overhaul, implemented through President Trump’s Working Families Tax Cuts Act signed into law last July, reshapes how students borrow money for education and the repayment options available to them.
The changes represent one of the most significant transformations to the student loan system in decades, with implications for current borrowers, new students, parents, and future graduates.
One of the most immediate changes concerns the roughly 7 million borrowers currently enrolled in the Biden-era Saving on a Valuable Education (SAVE) plan. Beginning today, they are receiving notices from their loan servicers requiring them to select a new repayment plan within 90 days. If they do not act, they will be automatically placed into a standard repayment plan. SAVE borrowers have been in forbearance since 2024 and face the prospect of significantly higher monthly payments under alternative plans.
For new federal student loan borrowers taking out loans starting today, the federal government is narrowing repayment options to just two plans: the new Repayment Assistance Plan (RAP) and the Tiered Standard repayment plan. Previously, borrowers had access to multiple income-driven repayment options. Under RAP, borrowers’ monthly payments will be calculated as a percentage of their income, ranging from 1 to 10 percent of adjusted gross income, with a minimum of $10 per month. The plan includes a $50 monthly reduction per dependent and offers loan forgiveness after 30 years of payments.
The new Tiered Standard repayment plan offers fixed monthly payments spread over 10 to 25 years depending on total debt amount. Borrowers with higher balances receive longer repayment periods and lower monthly payments. This differs from the current standard 10-year plan, which applies the same repayment timeline regardless of balance.
Existing borrowers who took out loans before today have more flexibility. They can continue accessing existing repayment plans such as Standard, Graduated, and Extended plans until July 1, 2028. However, most older income-driven repayment plans including PAYE and ICR will be phased out by 2028, and those borrowers will need to transition to either RAP or Income-Based Repayment.
Graduate and professional students face new borrowing constraints. Beginning today, graduate students pursuing master’s degrees can borrow a maximum of $20,500 per year or $100,000 total for their degree, compared to the previous system where they could borrow up to their school’s full cost of attendance. Professional students in fields such as law and medicine can borrow up to $50,000 annually or $200,000 total. All graduate borrowers face a combined lifetime limit of $257,500 across all federal loans.
The elimination of the Graduate PLUS loan program marks another significant change. New graduate and professional students can no longer access this program, which previously allowed borrowing up to the full cost of attendance with minimal credit requirements. Existing borrowers with Graduate PLUS loans can continue borrowing for up to three years or until program completion if they remain in the same program.
Parent PLUS loans are also subject to new caps. Starting today, parents can borrow a maximum of $20,000 per year per dependent student, with a lifetime limit of $65,000 per student, replacing the previous unlimited cost-of-attendance model.
The Trump administration is offering borrowers enrolled in auto pay an incentive to help with the transition. Beginning today, borrowers who enroll in automatic payments by September 30 will receive a one percent interest rate reduction through June 30, 2028.
The administration framed the changes as aimed at simplifying the loan system and reducing excessive borrowing. The Department of Education estimated the final rule would save American taxpayers $409 billion by simplifying repayment and protecting students from overborrowing. However, education experts and consumer advocates have raised concerns that the changes could make higher education less accessible, particularly for low-income borrowers who may face higher monthly payments and reduced access to income-driven plans.
Borrowers affected by these changes can access detailed information and begin applying for new repayment plans through StudentAid.gov. The application process takes approximately 10 minutes and can be completed online.