The federal student loan program has some big changes on the way, impacting current borrowers and those in repayment. Most of the changes take effect on July 1, 2026, as per new provisions in the One Big Beautiful Bill Act.
Student financial aid experts outlined the key changes and how they could affect your overall financial aid strategy.
[Read: Best Student Loan Refinance Lenders.]
Will Changes to the Federal Financial Aid Program Affect You?
While there have been tweaks to the federal student aid program in years past, Sarah Austin, policy analyst at the National Association of Student Financial Aid Administrators, says this year isn’t typical. “We really have with OBBBA many provisions in there that are reshaping student financial aid in general, but also significant changes in federal loan programs,” she says.
“On the front end, in terms of current students or up-and-coming students not in repayment yet, the biggest impact will be the elimination of the Grad PLUS loan program,” she says. “On the repayment side of things, the biggest changes or impacts are going to be the overhaul of the system to just two repayment plan options.”
Here’s a more in-depth look at some of the key changes.
Federal Student Loan Changes: The Borrowing Side
Grad PLUS Loans are Being Replaced
“The Graduate PLUS loans have been replaced with higher loan limits on the Federal Direct Stafford loan for graduate students,” explains Mark Kantrowitz, student loan expert and author of “How to Appeal for More College Financial Aid.” Students in graduate programs can borrow $20,500 per year and $100,000 aggregate. For professional degree programs like medicine and law, the yearly limit is $50,000 with a $200,000 aggregate maximum.
Grad PLUS loans were only capped by the school’s cost of attendance, so the new grad student loan caps might seem like a big change. Austin cautions that the reduction in federal borrowing power is not as big of a change as you might think. That’s because undergraduate borrowing is not included in the new graduate loan limits. So while the current system has an aggregate loan limit of $138,500 for both undergraduate and graduate federal loans, moving forward, the graduate loan limit will stand alone. “The new graduate aggregate limit of $100,000 does not include any undergrad loans,” confirms Austin.
Other Changes to Federal Student Loan Borrowing to Watch
— New Limits on Parent PLUS Loans. Parent borrowers will also face new federal loan limits, as Parent PLUS loans will be capped at $20,000 per year. The lifetime limit will be $65,000 per dependent student.
— Institutions can set loan limits at the program level. “This gives the school flexibility if it has a low-cost program or if it’s seeing high default rates,” says Austin, noting that it’s unclear right not how much schools will utilize this option.
— New lifetime maximum for all Federal Loans is $257,500. This includes all federal student loans (other than Parent PLUS Loans). Note that if you’re in the midst of your studies, there is a legacy provision. That means if you’ve already borrowed prior to July 1, 2026, you can continue to go by the current loan limits for the remainder of your expected program completion.
What Student Borrowers Need to Know
How will new loan limits really affect students? “As borrowing caps tighten, some students may find that federal aid alone no longer covers the full cost of attendance,” explains Bethany Hubert, college lending and financial aid specialist at Earnest.
Besides aggressively pursuing non-loan aid like grants, scholarships and work-study, Hubert stresses the importance of evaluating college choices through a financial lens. “Look closely at total cost, expected aid, and what your family can realistically afford without overborrowing,” she says. If there’s still a funding gap, students will have to rely on private student loans.
If you were planning to take a Grad PLUS loan and you’re already in school, you still have time to take advantage of current rules. “Plan ahead and apply for federal aid before July 1, 2026, since current borrowers are expected to be grandfathered in before the program is phased out,” says Hubert.
Federal Student Loan Changes: The Repayment Side
Limited Repayment Options
The SAVE repayment plan has been repealed and the Income-Contingent Repayment and Pay As You Earn repayment plans will be phased out by July 1, 2028, says Kantrowitz. What that means is new borrowers, as of July 1, 2026, will be going from about a dozen federal student loan repayment options down to two. The minimum monthly payment for both of the new plans will be $10.
— Standard Repayment Plan. Repayment term is based on the loan balance (10 years for under $25,000, 15 years for $25,000 to $49,999, 20 years for $50,000 to $99,999 and 25 years for $100,000 or more).
— Repayment Assistance Plan. A new income-driven repayment plan, RAP bases the payment on a percentage of your adjusted gross income, or AGI, from 1% to 10%. So, if you earn from $10,001 to $20,000, you will be responsible to pay 1% of that income. This increases by a percentage point for each additional $10,000 in AGI, until it reaches 10% for AGI of $100,000 or more. From there, the monthly RAP payment is reduced by $50 for each dependent you have. RAP is also eligible for Public Service Loan Forgiveness.
Pros of New Repayment Options
— Less confusion. Having just two repayment options offers an easier, clear-cut choice for borrowers.
— No more negative amortization. That means a principal balance can no longer increase during repayment as long as you’re making on-time payments. Monthly accrued interest that is unpaid after the monthly payment is not charged to the borrower.
— At least $50 is guaranteed to come off the principal. “If the payment to principal is less than $50, The Department of Education will match the payment up to $50,” says Kantrowitz.
— Factors in dependents. The monthly payment in RAP is reduced by $50 for each dependent, so that means if you have three kids, that can reduce your payment obligation by $150.
Cons of New Repayment Options
— Your payment may go up. Depending on your income level, your Repayment Assistance Plan payment could end up higher than what the standard repayment would have been. It maxes out at 10% of your income if your AGI is over $100,000.
— You’ll pay for five or 10 more years. RAP has a 30-year repayment term instead of the 20 or 25 years in the current plans, which equates to paying more interest over time.
— Limits parent options. Parent PLUS borrowers will only have a standard repayment plan option. “And there will be no time-based loan forgiveness component,” says Austin.
New Tax Rules Around Loan Forgiveness
The tax-free status of death and disability discharges has been made permanent. Forgiveness of the remaining debt after 20, 25 or 30 years in an income-driven repayment plan is now taxable, however. “Forgiveness based on occupation, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness, remains tax-free,” says Kantrowitz.
If you’re expecting a loan discharge moving forward, be mindful that it may impact your taxes. “For borrowers with large balances, that could result in a hefty one-time tax bill in the year their loans are forgiven,” says Hubert.
Austin notes that if you already have a pending application for forgiveness, then you should be covered. “One of the things we were concerned about is the backlog of applications for loan forgiveness and how quickly those are being processed. The Department agreed that if a borrower was eligible for forgiveness before the tax change, it would follow old tax rules,” she says.
Other Changes to Federal Student Loan Repayment to Watch
— Wage garnishment is on pause for now. Although the Department was set to resume Administrative Wage Garnishment and the Treasury Offset Program for student loans in default in January 2026, borrowers were given another reprieve and another chance to rehabilitate their defaulted loans before the programs resume.
— A second chance after default. Borrowers are now able to rehabilitate defaulted loans twice instead of just once as per the OBBBA, says Kantrowitz.
What People in Repayment Need to Know
“Changes to federal tax rules for loan forgiveness will make 2026 a critical planning year for borrowers,” says Hubert.
She encourages borrowers to think about their long-term repayment strategy, and whether it makes sense to stay in the federal system or eventually refinance. “Some borrowers may benefit most from the protections of the federal system, such as those pursuing Public Service Loan Forgiveness, while others may favor the lower interest rates and shorter repayment timelines that refinancing offers,” she says.
Borrowers should also consider whether they are aiming for eventual loan forgiveness or a faster payoff, how much they expect to have forgiven, and if a future one-time tax bill would be manageable.
[Read: Best Private Student Loans.]
How Students and Borrowers Can Get Ready for Federal Student Aid Changes
If you’re planning to borrow for the next academic year, understanding the new rules can help with planning. “Understanding where you fall under the new formula can help set realistic expectations about grants, loans and out-of-pocket costs,” says Hubert.
Austin recommends that current college students lean on their school’s financial aid office. “Financial aid administrators are working on proactive outreach and resources to provide for students,” she says.
Once you’re in the repayment phase, Austin advises to make sure your contact information is kept up-to-date with your loan servicers since they will notify you about any changes. Unfortunately, many students who graduate and move neglect to update their address. “This period of time when leaving school is so essential because it’s when payments will begin,” says Austin.
No matter where you are in the process, bookmark the StudentAid.gov site and keep watch for announcements and updates regarding your loans. When the new repayment plan option is available, you will be able to use the Loan Simulator tool on the site to see how your total payment and monthly payment could look under the new options. This can help you decide which path makes the most sense for your financial situation.
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Key Things to Know About Federal Student Loans in 2026 originally appeared on usnews.com
