Federal student loans are about to undergo a significant overhaul that will affect how students and parents pay for college starting this summer. The changes, which stem from the One Big Beautiful Bill Act signed into law last July, introduce new caps on federal borrowing, eliminate a key graduate school lending programme and replace most existing repayment plans with a smaller set of options.
For many future borrowers and their families, that means stricter limits on how much they can take out and fewer repayment pathways to choose from. Here is how the changes break down.
Graduate PLUS Loans Are Being Eliminated
Graduate PLUS loans will no longer be available to new borrowers starting July 1 under the new law. Current borrowers will be able to keep and repay their loans under existing terms for up to three additional academic years or until completing their programme, whichever comes first.
The PLUS programme, created in 2006, was one of two federal loan options the Department of Education offered to graduate students. It allowed them to borrow up to the full cost of attendance minus other financial aid, effectively removing federal borrowing caps for graduate students. In practical terms, a student borrowing for a two-year Master of Business Administration degree could easily graduate with more than $150,000 in debt.
Although only about 16% of graduate borrowers used Grad PLUS in recent years, the programme accounted for roughly one-third of federal graduate loan dollars, according to a 2024 report from the Georgetown University Center on Education and the Workforce.
Under the new law, graduate students will instead rely on Direct Unsubsidized Loans, which come with new annual and lifetime borrowing limits. Starting July 1, graduate students will be capped at $20,500 per year and $100,000 in total borrowing, while professional students such as those in law or medical programmes will be capped at $50,000 annually and $200,000 overall. A broader lifetime federal student loan limit of $257,500 will also apply.
Parent PLUS Loans Will Be Limited
Parent PLUS loans will remain available under the latest overhaul, but new limits will cap how much families can borrow starting next academic year.
Historically, parents have been able to borrow up to the full cost of attendance minus other financial aid, with no set annual or lifetime cap. That has made Parent PLUS a key financing tool for families covering gaps in undergraduate costs, though it also made it easy to take on more debt than they can manage.
Beginning in July, borrowing will be capped at $20,000 per year per student, with a lifetime limit of $65,000 per student.
Similar to Grad PLUS loans, families who have already taken out federal student loans before July 1 will be able to continue borrowing under the current rules for up to three years or until the student finishes their programme, whichever comes first.
At the same time, repayment options are narrowing. Parent PLUS loans have never been eligible for most income-driven repayment plans. The only option has been the Income-Contingent Repayment plan, and that is only after consolidating the loans into a Direct Consolidation Loan.
The new rules add a hard deadline to that workaround. Current borrowers who want access to income-driven repayment must complete a consolidation before July 1. After that, Parent PLUS, both new and existing, will no longer be eligible for any income-driven repayment plan.
Schools Can Set Lower Borrowing Limits by Programme
Another major change gives colleges more authority to limit how much students can borrow in federal loans based on their academic programme.
Under the new rules, schools can set lower borrowing limits for specific majors, as long as those limits are applied consistently to all students in that programme. Previously, borrowing was largely constrained by federal loan limits and the overall cost of attendance set by colleges, rather than explicit caps tied to individual programmes.
The change gives schools a more direct way to restrict borrowing in programmes where, for example, debt levels may be high relative to expected earnings.
Part-Time Students Will Have Lower Borrowing Limits
Before these changes, part-time students have generally been able to borrow up to the same annual federal loan limits as full-time students. And notably, those baseline limits for direct subsidised and unsubsidised loans for undergraduate students will mostly remain unchanged.
However, starting in the 2026-27 school year, borrowing limits will be prorated based on enrolment, meaning students enrolled less than full-time will face reduced annual loan caps.
A New Repayment Plan Will Replace Most Existing Options
The new law replaces most existing income-driven repayment plans with the Repayment Assistance Plan, or RAP, which will become the primary income-driven option for borrowers taking out federal loans starting July 1.
Under current rules, borrowers can choose from multiple income-driven plans, including the Saving on a Valuable Education plan, Pay as You Earn and Income-Based Repayment, which calculate payments based on income and offer forgiveness after 20 to 25 years.
For current borrowers, the existing plans are being phased out. The most immediate changes affect the more than seven million borrowers enrolled in the SAVE plan, who will soon be forced to transition to a new repayment option after the plan was struck down in court. Starting July 1, borrowers will have 90 days to choose a new plan or be automatically placed into a standard repayment plan. The other plans will phase out by 2028, and existing borrowers will then be able to choose between RAP and Income-Contingent Repayment going forward.
RAP bases monthly payments on a borrower’s adjusted gross income, ranging from about 1% to 10% depending on earnings. Similar to SAVE, RAP cancels unpaid interest each month if borrowers continue making their payments.
However, RAP extends the repayment timeline, with any remaining balance forgiven after 30 years, longer than most current income-driven plans. That means some borrowers could remain in repayment for a longer period before qualifying for forgiveness.
For new borrowers who take out loans after July 1, repayment options will effectively be reduced to two choices: RAP or a standard fixed-payment plan.