A sweeping set of student loan reforms, part of last year's One Big Beautiful Bill Act, will take effect on July 1, 2026, bringing significant changes for millions of borrowers across the country. The new rules include the termination of the Biden-era Saving on a Valuable Education (SAVE) plan, the introduction of two Republican-designed repayment plans, and stricter borrowing limits for graduate students.
While not every change affects every borrower, the overall impact is expected to be substantial, particularly for those with low incomes who relied on SAVE's generous terms.
For the more than 7 million borrowers still enrolled in SAVE, the clock is ticking. The U.S.
Department of Education has begun sending notices requiring them to switch to a new plan within roughly 90 days. If they do not act, they will be automatically enrolled in one of the least flexible repayment options.
Financial aid experts warn that this transition could lead to a surge in student loan defaults, especially among borrowers who qualified for $0 monthly payments under SAVE due to their low incomes.
Borrowers with loans issued before July 1 who do not plan to take out new loans have several repayment options. These include the Standard Repayment Plan, which offers fixed monthly payments over 10 years; the Graduated Repayment Plan, where payments start low and increase every two years; and the Extended Repayment Plan, which stretches payments up to 25 years.
Income-driven plans such as Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) remain available, though ICR and PAYE are being phased out by 2028. A new option, the Repayment Assistance Plan (RAP), bases payments on adjusted gross income and offers benefits like interest waivers and principal-matching payments, but requires 30 years of repayment before forgiveness.
For borrowers who already have loans and plan to take out more after July 1, choices are limited to two new plans: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan. The Tiered Standard Plan adjusts repayment periods based on the total debt—10 years for balances under $25,000, up to 25 years for $100,000 or more—resulting in smaller monthly payments but longer repayment terms.
New undergraduate borrowers face no changes to lending limits, which remain at $5,500 to $7,500 per year depending on dependency status and year of study. However, they will only have two repayment options: RAP or the Tiered Standard Plan.
Graduate students, on the other hand, face dramatic reductions in borrowing limits. Starting July 1, they can borrow only $20,500 per year, up to a total of $100,000, down from the previous limit of the full cost of attendance.
Exceptions are made for certain professional degrees—such as law, medicine, and dentistry—which qualify for $50,000 per year and a $200,000 total cap. Current graduate students who were enrolled and had received a loan by June 30, 2026, may be exempt from the new limits for up to three academic years.
Another major change is the expansion of Pell Grants to cover short-term workforce training programs, such as those for certified nursing assistants or welders. These programs, lasting between eight weeks and a year, will now qualify for federal aid, with awards prorated based on program length.
The maximum Pell Grant for traditional programs remains $7,395 for the 2026-27 academic year.
Overall, the July 1 changes represent a significant shift in federal student loan policy, with potential consequences for affordability, access to higher education, and the financial well-being of millions of Americans.