Trump Signs Tax Bill Overhauling Student Loans

President Donald Trump’s “big, beautiful bill” has officially become law after being signed by the president during a July 4 celebration. This landmark legislation, which spans nearly 1,000 pages, represents a significant victory for Trump’s domestic policy agenda. Among its many provisions, the bill includes a comprehensive overhaul of the federal student loan repayment system, as well as increases in military and border spending, extensions of tax cuts from Trump’s first term, and cuts to federal welfare programs.

The changes to the student loan system primarily impact new borrowers taking out loans starting in July 2026 or later. However, current borrowers enrolled in certain income-driven repayment plans, such as Saving on a Valuable Education (SAVE), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE), will also be affected. According to student loan law expert Adam Minsky, these borrowers may see significant increases in their monthly payments.

One of the key components of the new law is the creation of a new federal student loan repayment option known as the Repayment Assistance Plan (RAP). This plan consolidates several income-driven repayment options into one, with monthly payments ranging from 1% to 10% of the borrower’s adjusted gross income (AGI). After 360 months of on-time payments, any remaining balances will be forgiven under the RAP.

For borrowers already on fixed payment plans, such as standard, graduated, and extended plans, they can continue on their current schedule. However, new loans taken out after July 1, 2026, will be subject to the new standard repayment plan, which has fixed payment terms ranging from 10 to 25 years based on the loan amount.

While most current borrowers not enrolled in income-driven repayment plans will not see direct impacts from the new law, those enrolled in SAVE, ICR, and PAYE can expect changes when they are required to switch plans. The introduction of RAP aims to keep payments affordable, with minimum monthly payments ranging from $10 to over $830 depending on the borrower’s AGI.

The implementation of the new law will see all new loans issued after July 1, 2026, subject to the new repayment plans. Borrowers enrolled in affected IDR plans will need to switch to the new plans between July 2026 and July 2028.

In terms of loan forgiveness, public and nonprofit workers can still benefit from Public Service Loan Forgiveness (PSLF). Additionally, the RAP will offer forgiveness of remaining balances after 360 months of on-time payments. However, the forgiveness timeline for borrowers under existing IDR plans that are being phased out remains unclear.

Deferment options for economic hardship and unemployment will be eliminated after July 2027. However, other deferment options, as well as forbearance options, will remain available to borrowers.

For Parent PLUS loan borrowers, changes include new loan limits starting in July 2026 and the sunset of the Income-Contingent Repayment (ICR) plan. Current Parent PLUS borrowers may maintain access to income-driven repayment plans if they consolidate before July 2026.

In conclusion, the new law represents a significant overhaul of the federal student loan repayment system, with implications for both current and future borrowers. The changes aim to streamline repayment options and ensure affordability for borrowers while also addressing key issues within the student loan system.