Student Loan Updates: 5 Big Changes Coming This Summer

Federal student loans are on the verge of a significant transformation, impacting how students and parents finance college education starting in just a few weeks. The changes, enacted through the One Big Beautiful Bill Act (OBBBA) signed into law by President Donald Trump last July, bring in new limits on federal borrowing, phase out a crucial graduate school lending program, and streamline the array of repayment plans available.

One of the most significant changes is the discontinuation of Graduate PLUS loans for new borrowers effective July 1 under the OBBBA. Existing borrowers can continue repaying their loans under the current terms for up to three additional academic years or until they complete their program. The Graduate PLUS program, established in 2006, provided graduate students with the option to borrow up to the total cost of attendance minus other financial aid, effectively bypassing federal borrowing restrictions for graduate students. However, only about 16% of graduate borrowers utilized the Grad PLUS program, yet it accounted for around one-third of federal graduate loan dollars.

Under the new legislation, graduate students will now rely on Direct Unsubsidized Loans with new annual and lifetime borrowing limits. Starting July 1, graduate students will be limited to borrowing $20,500 per year and $100,000 in total, while professional students will have an annual cap of $50,000 and a lifetime limit of $200,000.

Parent PLUS loans will continue to be available but with new restrictions on borrowing amounts starting in the upcoming academic year. Previously, parents could borrow up to the full cost of attendance without set annual or lifetime limits. However, the new regulations will cap borrowing at $20,000 per year per student, with a lifetime limit of $65,000 per student.

Furthermore, colleges now have the authority to impose lower borrowing limits on students based on their academic program. This change allows schools to set borrowing limits for specific majors, ensuring consistency for all students in that program. Previously, borrowing was primarily restricted by federal loan limits and the overall cost of attendance set by institutions.

Part-time students will also face reduced borrowing limits based on enrollment status starting in the 2026-27 school year. While the baseline limits for direct subsidized and unsubsidized loans for undergraduate students will mostly remain the same, prorated borrowing limits will be introduced for part-time students.

Moreover, the OBBBA introduces a new Repayment Assistance Plan (RAP) to replace most existing Income-Driven Repayment (IDR) plans. The RAP will become the primary income-driven option for borrowers taking out federal loans from July 1 onwards. Monthly payments under RAP will be based on adjusted gross income, ranging from about 1% to 10% depending on earnings, with any remaining balance forgiven after 30 years.

Overall, the changes in federal student loans under the OBBBA bring a more structured and streamlined approach to borrowing and repayment, aiming to ensure responsible borrowing practices and manageable repayment options for students and families.