If you’re paying federal student loans, you’ll face sweeping changes by July 2026. The new Repayment Assistance Plan will replace your current income-driven options, demanding 10% of your income regardless of financial hardship. Collections restart in May 2025, and familiar safety nets like hardship deferments disappear. Whether you’re in school, struggling financially, or managing payments smoothly, these rules affect your future—and what you don’t know could cost you thousands.
Major Repayment Plan Changes Taking Effect July 2026
If you’re planning to borrow federal student loans after July 2026, you’ll face a dramatically different repayment landscape.
The government’s consolidating multiple repayment options into just two plans: a new standard plan and the Repayment Assistance Plan (RAP). You won’t have access to current income-driven options like SAVE anymore.
RAP replaces all existing income-driven plans for new loans. You’ll pay 10% of your adjusted gross income minus $50 per dependent, with a mandatory minimum payment of $10 monthly—even if you’re below the poverty line.
While RAP waives unpaid interest and can reduce principal by up to $50, you’ll need 30 years of qualifying payments for forgiveness instead of the current 10-25 years. Borrowers who opt out of IRS data sharing for income re-certification will automatically revert to 10-year standard plan payments.
If you don’t select a plan, you’ll automatically default to the new standard plan. The length of your standard repayment will depend on your total amount borrowed, potentially extending beyond the traditional 10-year term.
New Borrowing Limits for Graduate and Professional Students
Starting in July 2026, you’ll face stricter federal loan limits whether you’re pursuing a master’s degree or professional doctorate.
If you’re a graduate student, you can borrow up to $20,500 annually in unsubsidized loans. Professional students in fields like medicine, law, dentistry, or pharmacy have a higher cap of $50,000 per year. Currently, students in specific health professions can borrow up to $40,500 annually through increased unsubsidized limits.
Your lifetime borrowing limit across all federal loans is now $257,500, significantly higher than the previous $138,500 cap. This doesn’t include Parent PLUS loans borrowed on your behalf.
If you’ve already taken out loans before July 2026, you’ll benefit from legacy provisions. You can continue borrowing under the old limits for up to three years or until you complete your degree, whichever comes first. These new limits come as Grad PLUS loans will be completely eliminated for new graduate students starting that same date.
Elimination of Hardship Deferments and Restricted Forbearance Options
When you face unexpected financial hardship after July 2027, you’ll discover that federal student loan relief options have become significantly more limited.
If you’re unemployed, earning below minimum wage, or receiving welfare benefits, you won’t qualify for economic hardship deferments on loans taken after July 1, 2027. These deferments previously allowed three-year payment pauses without interest accrual in some cases.
You’ll also encounter stricter forbearance rules. The maximum forbearance period drops from 12 to 9 months, and interest continues accruing during this time. The Department expects to launch a new income-based Repayment Assistance Plan by July 1, 2026, which may provide alternative relief options for struggling borrowers.
Without replacement options for eliminated deferments, you’ll need to continue making payments even during financial crises. The Big, Beautiful Bill signed on July 4 created these changes that affect only future borrowers. Only borrowers with loans from before July 2027 retain access to these hardship protections, creating a two-tiered system based on when you borrowed.
End of the SAVE Plan and Transition Requirements
The courts have terminated another major student loan relief program, leaving 7.7 million borrowers scrambling for alternatives. Federal judges blocked the SAVE Plan’s implementation through 2024, with the 8th Circuit Court upholding an injunction in February 2025.
You’ve lost SAVE’s zero-interest benefit and 5% payment cap on discretionary income. Low-balance borrowers also lost the opportunity for 10-year forgiveness that SAVE previously offered.
Starting August 1, 2025, you’ll accrue interest on your balance again. While you won’t face immediate payment requirements, your loan balance will grow over time. The forbearance period does not count toward Public Service Loan Forgiveness or Income-Driven Repayment forgiveness timelines.
The Department of Education will contact you directly with transition instructions to approved repayment plans. You must act quickly to select a sustainable option that complies with federal law.
Without SAVE’s protections, you’ll likely face higher monthly payments and faster-growing balances under standard income-driven plans.
Restart of Federal Collections and Enforcement Actions
After five years of suspended enforcement, federal collection activities on defaulted student loans resumed May 5, 2025, affecting over 5 million borrowers who are more than 360 days late on payments.
Starting June 2025, you’ll face Treasury Offset Program actions if you’re in default. The government can withhold your entire tax refund and redirect federal benefits like Social Security toward your debt.
By late summer, wage garnishment begins—your employer must withhold up to 15% of your disposable income. The FSA will launch new support tools including an AI Assistant named Aiden to help borrowers navigate their repayment options.
You’ll receive notices before garnishment starts, offering options like rehabilitation or income-driven repayment plans. The Department’s contacting borrowers directly to explain legal repayment paths, especially the 7.7 million previously enrolled in cancelled programs. Federal Reserve Bank of New York estimates 9 million borrowers will experience credit score drops, with some facing reductions exceeding 150 points.
With only 38% of borrowers current on loans, you must act quickly to avoid enforcement actions.
Timeline and Transition Deadlines for Current Borrowers
Since federal student loan repayment resumed in October 2023, you’ve navigated several critical deadlines that determine your repayment options and eligibility for forgiveness programs.
If you held commercially-held FFEL loans, you needed to consolidate by December 31, 2023, to receive credit for previously uncounted payments toward forgiveness. The Fresh Start program also ends in September 2024, offering defaulted borrowers a chance to restore their loan eligibility and stop collections.
Your repayment future depends on when you take out loans. Starting July 1, 2026, you’ll only have two options for new federal loans: the redesigned income-driven RAP or a new standard plan.
If you don’t choose, you’ll automatically get the standard plan. Taking out any loan after this date means you must repay all your loans under these two plans only. However, collections on defaulted federal loans will restart on May 5, 2025, marking the first time since March 2020 that the government will resume these activities.
However, if you don’t borrow after July 1, 2026, you’ll keep access to current repayment options.
In Conclusion
You’ll need to act quickly to prepare for these sweeping changes to federal student loans. Don’t wait until July 2026 to understand how the new RAP affects your monthly payments. Review your current plan, calculate what you’ll owe under the 10% income requirement, and explore your options before collections restart in May 2025. Stay informed about transition deadlines and borrowing limits. Taking action now will help you avoid default and manage your loans effectively under the new rules.
References
- https://www.bankrate.com/loans/student-loans/current-student-loan-news-july-8-2025/
- https://www.nasfaa.org/uploads/documents/Federal_Student_Aid_Change_OB3_July2025.pdf
- https://www.ed.gov/about/news/press-release/us-department-of-education-continues-improve-federal-student-loan-repayment-options-addresses-illegal-biden-administration-actions
- https://www.ed.gov/about/news/press-release/us-department-of-education-begin-federal-student-loan-collections-other-actions-help-borrowers-get-back-repayment
- https://bipartisanpolicy.org/blog/2025-budget-reconciliation-and-student-loans/
- https://studentloanborrowerassistance.org/big-bill-means-big-changes-for-student-loan-borrowers-what-you-need-to-know/
- https://ticas.org/affordability-2/provisions-affecting-higher-education-in-the-reconciliation-law/
- https://www.cbsnews.com/news/big-beautiful-bill-changes-student-loan-repayment/
- https://ticas.org/federal-student-loan-amounts-and-terms-for-loans/
- https://fsapartners.ed.gov/knowledge-center/fsa-handbook/2025-2026/vol8/ch4-annual-and-aggregate-loan-limits