Navigating the New Student Loan Bill: What Borrowers Need to Know

The student loan landscape is about to get a major shake-up. A new student loan bill has been signed into law, bringing significant changes to how students borrow and repay their education debt. For many borrowers, this means a more complicated system and fewer options than before. It's important to understand these shifts to make informed decisions about your student loans.

Key Takeaways

• Starting July 1, 2026, new federal student loan borrowers will face stricter borrowing limits, especially for graduate and professional programs. Graduate PLUS loans will be eliminated for new borrowers.

• The number of student loan repayment options is shrinking. New borrowers after July 1, 2026, will only have two choices: a new standard plan or a Repayment Assistance Plan (RAP).

• Existing borrowers on plans like SAVE will need to transition. Those currently on Income-Driven Repayment (IDR) plans will have until July 1, 2028, to switch to IBR or RAP if they take out new loans after July 1, 2026.

• Borrowers who have their debt canceled after December 31, 2025, could face a significant tax bill, as federal tax protections for discharged debt are ending, except for cases of death or disability.

• Student loan protections are being reduced. After July 1, 2027, new loans will have limitations on deferments and forbearances, potentially increasing the risk of delinquency and default for borrowers facing financial hardship.

Understanding the New Student Loan Bill

Key Dates for Student Loan Bill Changes

This new student loan bill brings some significant changes, and knowing the dates is pretty important. Most of the big shifts kick in starting July 1, 2026. That's when new borrowing limits and repayment options become the standard for anyone taking out federal loans after that date. However, if you're already in school or have loans from before July 1, 2026, you've got a bit of a grace period. Current borrowers are generally exempt from the new lending limits for up to three years, or until the end of their current program of study. It's a bit of a staggered approach, so pay attention to when your specific situation might be affected.

Impact on Current vs. New Borrowers

The way this bill affects people really depends on whether you're taking out new loans or already have them. For those looking to borrow after July 1, 2026, the landscape changes quite a bit. You'll face new, often lower, borrowing limits, especially for graduate and professional programs. Plus, your repayment options will be significantly narrowed down to just two choices: a new standard plan or a Repayment Assistance Plan (RAP). Existing borrowers, on the other hand, get to keep their current repayment plans for a while. But there's a catch: if you take out any new loans after July 1, 2026, even a consolidation loan, you'll be moved to the new system. It's like a dividing line for federal student loans.

Overview of the Student Loan Bill's Scope

This bill is a pretty big deal, touching a lot of different parts of the federal student loan system. It's not just about how much you can borrow; it also reshapes how you can pay it back. For instance, some popular repayment plans are being phased out or changed. The bill also introduces new limits on how much can be borrowed, particularly for graduate students and parents taking out PLUS loans. One of the most significant impacts is the elimination of the SAVE plan for new borrowers and the potential tax implications for those who have their debt forgiven after 2025. It's a wide-ranging piece of legislation that touches on borrowing, repayment, and even the tax treatment of forgiven debt, affecting millions of borrowers across the country.

The changes introduced by this bill are substantial and will require careful attention from all federal student loan borrowers. Understanding these shifts is the first step in managing your student debt effectively under the new rules.

Changes to Federal Student Loan Borrowing Limits

Starting July 1, 2026, new rules will affect how much federal money students can borrow for higher education. These changes primarily target graduate and parent borrowers, with no immediate alterations for undergraduate annual or lifetime borrowing caps, aside from the overall combined limit.

New Limits for Graduate PLUS Loans

The Graduate PLUS loan program, which previously allowed borrowers to take out loans up to the cost of attendance, will see significant changes. For most graduate students, the annual borrowing limit will be set at $20,500, with a lifetime aggregate limit of $100,000. This aggregate limit includes any undergraduate loans previously taken out. Students pursuing professional degrees, such as those in medicine, law, or veterinary school, will have a higher annual limit of $50,000, with an increased lifetime cap of $200,000.

Revised Limits for Parent PLUS Loans

Parents who borrow through the Parent PLUS loan program to help finance their undergraduate children's education will also face new restrictions. The annual borrowing limit for Parent PLUS loans will be capped at $20,000 per student. Furthermore, a new lifetime aggregate limit of $65,000 per dependent child will be implemented. This means the total amount a parent can borrow across all years for a single child cannot exceed this new cap.

Impact on Annual and Lifetime Borrowing Caps

These adjustments mean that many graduate students and parents will have less access to federal loan funds. For instance, approximately 26% of current graduate students borrow more than the new annual caps, and about 40% of those completing a degree have cumulative debt exceeding the proposed lifetime limits. The new rules could lead to shortfalls for students in higher-cost or longer-duration programs, potentially requiring them to seek alternative, possibly more expensive, financing options.

Here's a look at the new limits:

Loan Type	Prior Annual Limit	New Annual Limit	New Lifetime Limit (per student)
Graduate Unsubsidized	$20,500	$20,500	$100,000
Professional Student Unsubsidized	$20,500	$50,000	$200,000
Graduate PLUS Loans	Up to Cost of Attendance	Eliminated	Eliminated
Parent PLUS Loans	Up to Cost of Attendance	$20,000	$65,000
Overall Lifetime Cap (all federal loans)	$138,500 (grad), $31,500 (undergrad)	N/A	$257,500

It's important to note that borrowers currently enrolled in a program before July 1, 2026, may be allowed to borrow under the old limits for up to three years or until they complete their current program, whichever comes first. However, part-time students' loans will still be prorated starting this year.

Navigating New Student Loan Repayment Options

Starting July 1, 2026, the landscape of federal student loan repayment is set for a significant shift. For borrowers taking out new federal loans on or after this date, the choices for how to repay them will be streamlined into two primary options: a new Standard Repayment Plan and a new Repayment Assistance Plan (RAP). This means many of the repayment plans you might be familiar with, including various Income-Driven Repayment (IDR) options, will no longer be available for new borrowers. Understanding these new structures is key to managing your student debt effectively.

The New Standard Repayment Plan

This updated plan features fixed repayment terms that are determined by the total amount of your loan balance when you enter repayment. There are no penalties for paying off your loan early. The structure is as follows:

• Up to $25,000: 10-year repayment term

• $25,000 - $50,000: 15-year repayment term

• $50,000 - $100,000: 20-year repayment term

• Over $100,000: 25-year repayment term

Introduction of the Repayment Assistance Plan (RAP)

The RAP is the sole income-driven repayment option available to new borrowers. Under this plan, your monthly payment is calculated as a percentage of your adjusted gross income (AGI). The specifics are:

• Payment Percentage: 1-10% of your AGI.

• Minimum Payment: A minimum monthly payment of $10 is required.

• Dependent Allowance: Payments are reduced by $50 for each dependent child.

• Repayment Period: Borrowers must make payments for 30 years before becoming eligible for loan cancellation. This is an extension compared to previous IDR plans, which had forgiveness timelines of 20-25 years, and the SAVE plan, which could be as short as 10 years.

• Interest Waiver: Similar to the SAVE plan, any unpaid interest that exceeds your monthly payment will be waived, preventing your balance from growing due to interest.

It's important to note that while the RAP offers a way to tie payments to income, the extended 30-year repayment period means borrowers will likely pay more in total over the life of the loan compared to some older IDR plans. This change is intended to reduce government subsidy costs.

Transitioning from Income-Driven Repayment (IDR)

For borrowers who currently have federal student loans and are enrolled in existing IDR plans (like SAVE, PAYE, or IBR), a transition period is in effect. If you have existing loans and wish to maintain access to certain forgiveness options, you generally need to switch to the Income-Based Repayment (IBR) plan or another qualifying legacy plan by July 1, 2028. After this date, borrowers who do not actively choose a plan may be moved to the new RAP by default. Borrowers who transition to IBR before the deadline can preserve forgiveness options after 25 years of payments. For those taking out new loans after July 1, 2026, they will only have access to the new Standard Plan or the new RAP.

Student Loan Bill and Tax Implications

This section looks at how the new student loan bill might affect your taxes, especially if you're expecting some of your debt to be forgiven. It's a bit of a mixed bag, and understanding these changes is important to avoid any surprises.

Taxability of Debt Cancellation After 2025

For a while, there was a federal tax break that made forgiven student loan debt not count as taxable income. This was part of the American Rescue Plan Act and was set to expire at the end of 2025. Unfortunately, the new student loan bill does not extend this broad protection. This means that if your student loans are canceled or forgiven after December 31, 2025, the forgiven amount could be considered taxable income by the IRS, potentially leading to a significant tax bill. This applies to most forgiveness scenarios, including those under Income-Driven Repayment (IDR) plans, unless specific exceptions are met.

Exemptions for Specific Loan Forgiveness Programs

While the general tax protection for forgiven debt is ending, some programs are still exempt. Forgiveness through the Public Service Loan Forgiveness (PSLF) program, for instance, remains non-taxable. Similarly, loan discharges related to school closures or fraud are also not subject to federal income tax. These existing exemptions are not altered by the new legislation. It's always a good idea to confirm the tax status of any specific forgiveness you might be pursuing.

Potential Tax Bills for Borrowers

Given the changes, borrowers who anticipate having their loans forgiven after 2025 should prepare for the possibility of owing taxes on that amount. The exact tax liability will depend on your total income for the year and your individual tax bracket. It's wise to start setting aside funds or consulting with a tax professional to understand your potential obligations. This is particularly relevant for those on IDR plans who are working towards forgiveness after a set period, as the tax implications could be substantial.

The shift in tax policy means that the financial benefit of loan forgiveness could be significantly reduced for many borrowers if they are not prepared for the tax consequences. Planning ahead is key.

Here's a quick look at what this means:

• Before January 1, 2026: Most forgiven student loan debt is not taxed federally.

• After December 31, 2025: Forgiven debt may be considered taxable income, except for specific programs like PSLF.

• Action Recommended: Consult a tax advisor to understand your personal situation and plan accordingly.

Impact on Existing Repayment Plans

If you've already got federal student loans and are currently on a repayment plan, the new bill has some specific things you'll want to pay attention to. It's not a complete overhaul for everyone, but there are definitely some key dates and changes to be aware of, especially if you're thinking about taking out new loans or consolidating what you have.

The Future of the SAVE Plan

For those currently enrolled in the Saving on a Valuable Education (SAVE) plan, you can stay put for a while. However, this plan, along with others like Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR), will eventually sunset. Borrowers on these plans must transition to either the Income-Based Repayment (IBR) plan or the new Repayment Assistance Plan (RAP) by July 1, 2028. If you don't make a choice by then, you'll be automatically placed into RAP, or IBR if you're not eligible for RAP.

Requirements for Current IDR and IBR Enrollees

If you're already in an Income-Driven Repayment (IDR) plan like SAVE, PAYE, or ICR, or even the Income-Based Repayment (IBR) plan, you have until July 1, 2028, to decide on your next move. After that date, if you're on SAVE, PAYE, or ICR, you'll be moved into either IBR or the new RAP. Borrowers who are already in the IBR plan can continue with it, as it's not scheduled to sunset. However, it's worth noting that IBR generally has higher monthly payments compared to SAVE or PAYE, so be prepared for that potential shift.

Consequences of Taking New Loans After July 2026

This is a big one: if you take out any new federal student loans on or after July 1, 2026, including consolidating your existing loans, you'll be treated as a new borrower. This means you'll lose access to the SAVE, PAYE, and ICR plans. Your only options for repayment will be the new standard repayment plan or the new Repayment Assistance Plan (RAP). This applies even if you were previously on one of the older, more flexible plans. Parent PLUS borrowers are also affected; after July 1, 2026, new Parent PLUS loans will only be eligible for the new standard repayment plan, not RAP.

Here's a quick look at what happens if you have existing loans and take out new ones after the deadline:

• Current Loans: You might be on SAVE, PAYE, or ICR.

• New Loans (after July 1, 2026): These will only be eligible for the new standard plan or RAP.

• Consolidated Loans (after July 1, 2026): Treated as new loans, limiting your repayment options.

It's important to understand that the rules change significantly for any new borrowing activity after mid-2026. Even if you have existing loans on favorable plans, taking out new loans will force you into the newer, potentially less flexible, repayment structures.

Reduced Borrower Protections Under the Student Loan Bill

Limitations on Deferments and Forbearances

Starting July 1, 2027, borrowers who take out new federal student loans will find that certain deferment options are no longer available. Specifically, deferments for unemployment and economic hardship, which previously allowed borrowers to pause payments for up to three years, will be eliminated. Additionally, the use of forbearances will be capped. Borrowers will only be able to use forbearances for a maximum of nine months within any two-year period. This tightening of options means fewer safety nets for borrowers facing unexpected financial difficulties.

Increased Risk of Delinquency and Default

With fewer options to temporarily pause payments during tough times, there's a greater chance that borrowers might fall behind on their loan obligations. The reduction in available deferments and the strict limits on forbearances could lead to an increase in the number of borrowers becoming delinquent or defaulting on their loans. This situation can have serious long-term consequences for an individual's financial health.

Changes to Loan Rehabilitation and Consolidation

For borrowers who do find themselves in default, the new bill does introduce some changes to how they can get back on track. After July 1, 2027, borrowers will have two opportunities to rehabilitate a defaulted loan, an increase from the previous one opportunity. However, the minimum monthly payment during the nine-month rehabilitation period will rise to $10. It's important to note that consolidating a defaulted loan after July 1, 2026, will make borrowers ineligible for Income-Driven Repayment (IDR) and Income-Based Repayment (IBR) plans that were available to current borrowers. This means that while rehabilitation is slightly more accessible, consolidation might close off future repayment options.

The shift in these protections suggests a move towards stricter loan management, potentially placing more immediate financial responsibility on borrowers when they encounter difficulties.

The new student loan rules mean less help for borrowers. It's harder to get forgiveness and protections are weaker. Don't get caught off guard by these changes. Visit our website to learn how to protect yourself and make smart choices about your student loans.

Looking Ahead

This new law really shakes things up for anyone with federal student loans, and honestly, it's a lot to take in. Starting July 1, 2026, things change quite a bit, from how much you can borrow to the repayment plans available. It's a good idea to keep an eye on updates from the Department of Education and organizations like the Student Borrower Protection Center. If you're struggling to figure out your options or need help, reaching out to your members of Congress for assistance is also a smart move. Staying informed is key as these changes roll out.

Frequently Asked Questions

When do these new student loan rules start?

Most of the big changes will begin on July 1, 2026. This is when new loan limits and repayment options will kick in for students and parents borrowing for college.

What happens to the SAVE plan?

The SAVE plan, which offered low monthly payments and faster loan forgiveness, will be shut down. Borrowers currently on SAVE will need to switch to a different plan by July 1, 2028. If they don't, their loans could grow with interest.

Are there new limits on how much I can borrow?

Yes, especially for graduate students and parents. Graduate PLUS loans are being eliminated for new borrowers. There are also new yearly and total amounts that graduate and professional students, as well as parents, can borrow.

What are my repayment choices after July 1, 2026?

If you take out new loans after July 1, 2026, you'll only have two main repayment options: a new standard plan or a new plan called the Repayment Assistance Plan (RAP).

Could I owe taxes on forgiven student debt?

Possibly. If your student debt is forgiven after December 31, 2025, and it's not for specific programs like Public Service Loan Forgiveness, you might have to pay income tax on the amount that was forgiven. This is a change from previous rules.

Are there fewer protections for borrowers now?

Yes, some protections are being reduced. After July 1, 2027, new borrowers won't be able to pause payments for unemployment or economic hardship for as long as before. Also, the total time allowed in forbearance is being shortened, which could make it harder for some borrowers if they fall behind.