Key takeaways

• New federal borrowers now have two repayment plan options instead of several income-driven plans.
• Some current borrowers, including those enrolled in SAVE, will need to transition to a different repayment plan. 
• New borrowing limits for Parent PLUS and graduate loans take effect alongside updated Pell Grant eligibility rules.

Students and families planning to use federal loans to pay for college are navigating new rules that took effect July 1, 2026.¹

The changes, which implement the 2025 One Big Beautiful Bill Act, affect repayment options, borrowing limits, and Pell Grant eligibility for both current and future borrowers — among other things.²

Because the new rules affect borrowers differently, it's important to understand which ones might apply to your situation. Whether you're already repaying federal student loans or planning to borrow in the future, here's some basics to know.

New borrowers face fewer repayment choices

Before the 2025 law, federal student loan borrowers could choose from several repayment plans, including multiple income-driven options. These include:³

• Standard Repayment Plan
• Extended Repayment Plan
• Graduated Repayment Plan
• Income-Based Repayment (IBR)
• Pay As You Earn (PAYE)
• Income-Contingent Repayment (ICR)

For most borrowers who take out new federal loans on or after July 1, 2026, those choices are generally limited to two plans: the Tiered Standard Plan and a new income-driven option called the Repayment Assistance Plan (RAP).⁴

Under the Tiered Standard Plan, the maximum repayment period is based on the borrower’s total federal loan balance. Loan terms are set at 10, 15, 20, and 25 years, though borrowers can always pay off their loans sooner.⁵

Monthly payments are calculated by dividing a borrower's loan balance over the maximum repayment period tied to that balance. For example, a borrower with a $30,000 loan and 6.52% interest rate (the 2026-2027 undergraduate Direct Loan rate), would pay about $262 per month over 15 years. Borrowers may make additional payments at any time to pay off their loans sooner and reduce total interest costs.⁶

How the Repayment Assistance Plan (RAP) works

The Repayment Assistance Plan (RAP) is the only income-driven repayment option available for borrowers who take out new federal loans on or after July 1. Unlike the tiered plan, RAP bases monthly payments on a borrower's income rather than the amount owed.⁷ 

Payments range from 1% to 10% of adjusted gross income on a sliding scale, with a minimum monthly payment of $10.⁸   

Borrowers with dependents can receive a $50 reduction in their required monthly payment for each dependent claimed on their federal tax return. However, the required monthly payment cannot be less than $10.⁹

RAP also includes a matching principal payment benefit. If a borrower's on-time monthly payment reduces the loan principal by less than $50, the federal government will contribute up to $50 each month toward the principal balance.¹⁰ 

In addition, borrowers who remain in the plan for 30 years and make qualifying monthly payments the whole time can have any remaining federal student loan balance forgiven. Any amount that is forgiven may be considered income for tax purposes.¹¹ 

Read more: Understanding adjusted gross income (AGI)

Already repaying loans? Here’s what changing

Many federal student loan borrowers are not required to change repayment plans immediately. 

However, the estimated 7 million borrowers enrolled in the Saving on a Valuable Education (SAVE) plan — a 2023 initiative designed to lower monthly payments and speed loan forgiveness — do face significant changes.¹²

Those borrowers are expected to receive notices from their loan servicers giving them 90 days to choose another eligible repayment plan, such as RAP or, if eligible, Income-Based Repayment. Borrowers who do not make a selection will be automatically enrolled in a standard repayment plan.¹³

Two other programs — the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans — also face phaseouts under the new rules, though not immediately like SAVE. Borrowers enrolled in those plans generally have until July 1, 2028, to transition to another eligible repayment option.¹⁴

Read more: How to consolidate and refinance your student loans

New borrowing limits for parents and graduate students

The new rules also change how families and graduate students borrow for college.

Beginning July 1, parents taking out new Parent PLUS loans can borrow no more than $20,000 per year and $65,000 per student. Previously, parents generally could borrow up to the full cost of attendance, minus other financial aid. New borrowers also face more limited repayment plan options. But parents who already borrowed Parent PLUS loans for a student enrolled before July 1, 2026, may continue borrowing under the previous rules.¹⁵

Graduate students also face new borrowing limits. Grad PLUS loans — which had previously allowed borrowers to finance up to the full cost of attendance — are no longer available for most new borrowers. Instead, the law creates separate borrowing limits for graduate and professional students.¹⁶

Students enrolled in professional degree programs, including medicine, dentistry and law, may borrow up to $50,000 annually and $200,000 over a lifetime. Students pursuing other graduate degrees generally are limited to $20,500 annually and $100,000 over a lifetime. All new graduate borrowers will face a new lifetime federal student loan cap of $257,500, with undergraduate loans counting toward that limit.¹⁷

Students already enrolled in a graduate or professional program generally are grandfathered under the previous rules if they meet certain eligibility requirements. Those borrowers generally may continue using Grad PLUS loans through completion of their program or through June 2029 — whichever comes first.¹⁸

Read more: How much to save for college: A realistic guide for parents

How Pell Grant eligibility is changing

The new rules also change the federal Pell Grant program, beginning with the 2026-27 award year. Unlike student loans, Pell Grants are need-based federal financial aid awards that generally do not have to be repaid.

Students with a Student Aid Index (SAI) of $14,790 or higher— equal to twice the maximum Pell Grant award for the year— are no longer eligible for a Pell Grant. The SAI — a proxy for financial need — is calculated using information submitted on the Free Application for Federal Student Aid (FAFSA).¹⁹

Another change affects students receiving significant outside financial aid. Beginning July 1, students whose nonfederal grants and scholarships equal or exceed their total cost of attendance are no longer eligible to receive a Pell Grant^.20 

At the same time, the law expands Pell Grant eligibility through a new Workforce Pell program. Beginning July 1, eligible students may use Pell Grants to enroll in approved short-term (as short as 8 weeks, but less than 15 weeks) workforce training programs^.21

Programs in fields such as medical assistants, childcare, and automotive mechanics could qualify. Previously, Pell Grants generally were limited to students enrolled in longer undergraduate degree or certificate programs.²² 

Looking ahead for student loans

The new rules do not affect every borrower the same way. In many cases, whether a change applies depends on when a loan was first disbursed, the repayment plan a borrower is enrolled in, and whether they take out new federal loans after July 1.

Borrowers should watch for notices from their loan servicer and make sure their contact information is up to date with both their servicer and StudentAid.gov. The Department of Education says borrowers could miss important repayment updates if their contact information is outdated.²³