The new federal spending bill passed in July 2025 introduced significant changes to many federal student loan repayment plans. That includes ending the Grad Plus loan program that enabled graduate and professional students to borrow more on top of direct loans.
These changes could affect millions of borrowers who carried an average of $33,770 in student debt in 2025, according to the Education Data Initiative.
These policies will begin to take effect July 1. People can check the status of their repayment plans and explore their options at studentaid.gov.
The new federal spending bill passed in July 2025 introduced significant changes to many federal student loan repayment plans. Several of these changes go into effect starting July 1. (Dreamstime/TNS)
Plans ending
Starting July 1, the federal government will start notifying the 7.5 million borrowers enrolled in SAVE to exit the plan and enroll in another one within 90 days. Those who don't enroll in another plan in that 90-day period will be automatically enrolled in either the Standard Repayment Plan or the new Tiered Standard Plan.
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If a borrower wants to switch plans before being notified, they can contact their loan servicer to switch at any point, according to the Department of Education. Borrowers under the SAVE plan could choose to apply for or recertify under the Income-Based Repayment, Income-Contingent Repayment or Pay As You Earn plans.
The PAYE and ICR repayment plans will be phased out.
Borrowers under the PAYE and ICR plans can remain there until July 1, 2028, as long as the borrower doesn't receive a direct loan on or after July 1, 2026. Those paying direct loans through PAYE or ICR must switch to paying them under the Repayment Assistance Plan, IBR or standard, graduated or extended repayment plans starting July 1, 2028.
New plans
Two repayment plans will be created.
RAP will be based on the borrower's income and number of dependents.
The Tiered Standard Plan will be based on the borrower's loan balance and be available in fixed terms of 10, 15, 20 and 25 years. People on the Tiered Standard Plan will not qualify for the Public Service Loan Forgiveness program.
Melissa Brennan, a financial planner based in the Dallas area with ARS Private Wealth, recommended selecting a plan based on income rather than a fixed term, if borrowers have the option.
"You want to maintain flexibility," she said. "Keep your payment less than what you can really afford but then overpay aggressively."
Loan limits
Graduate, professional and parent borrowers will see new loan limits for those issued on or after July 1.
Graduate student loans will be capped at $20,500 annually with a total loan cap of $100,000, professional student loans at $50,000 annually with a total loan cap of $200,000 and Parent Plus borrowers at $20,000 annually with a total cap of $65,000 per dependent.
The Department of Education will stop issuing new loans through the Graduate Plus program. This means that new enrollees pursuing graduate or professional programs will be limited by the direct loan cap, even if the cost of their tuition exceeds that amount. This could pose a challenge for these students, who may have to resort to private student loans that have higher interest rates, Brennan said.
Some professional or graduate borrowers may qualify for an interim exception.
Graduates attend Ohio State University's commencement ceremony on May 10, 2026.
Parent borrowers
Parent Plus borrowers may need to consolidate their loans.
Parents who received all their loans before July 1 remain eligible for an income-driven repayment plan as long as they consolidate their loans before July 1 and move to an income-driven plan by July 1, 2028.
However, people taking out a Parent Plus loan on or after July 1 only will be eligible to be moved to the Tiered Standard Plan, which is a fixed payment.
Second chance
Defaulted borrowers will get a second chance to rehabilitate their loans.
People who failed to pay loans now get two chances to rehabilitate them. This gives borrowers two opportunities to return to repaying loans and remove the default from their credit history.
Previously, defaulted borrowers could rehabilitate their loan only once. The updated policy will begin July 1, 2027.
Bottom line
Brennan advises borrowers to learn about their options as soon as possible. "The first step is to know what your cash flow is," she said. "The second step is to understand how these changes impact your cash flow and your repayment and how much overall interest you're going to pay."
From there, she recommends seeking professional financial advice.
"Find a specialist in student loan repayment," Brennan said. "Or learn as much as you possibly can and figure out the quickest way to pay off those loans."
"The bottom line with student loan repayment is pay it off as soon as you can," she said. "It's better to have that debt repaid and minimize the cost of that debt than to carry it forward for 20 years."
