New federal student-loan repayment plans and borrowing limits take effect July 1

Federal student-loan repayment rules change on July 1 for millions of borrowers. The Department of Education will replace existing income-driven plans with the Repayment Assistance Plan and a tiered standard plan, while also imposing new caps on borrowing for advanced degrees.

The Repayment Assistance Plan sets monthly payments between 1 percent and 10 percent of a borrower's adjusted gross income. Forgiveness occurs after 30 years of payments, compared with 20 or 25 years under current income-based plans. The tiered standard plan requires full repayment over a period tied to loan balance, with a minimum monthly payment of $50.

Loans under $25,000 must be repaid in 10 years; balances of $100,000 or more receive a 25-year term.

SAVE plan transition Seven million borrowers enrolled in the SAVE plan will receive notices from loan servicers starting July 1. They have 90 days to choose a new plan; otherwise servicers will place them on the standard or tiered plan. A notice sent in late May told SAVE borrowers they can switch before July 1 to avoid interest accrual during forbearance.

Four borrowers filed a lawsuit in March seeking to keep SAVE in place. The case remains active.

Borrowing limits Students taking their first federal loans on or after July 1 will have access only to the two new repayment plans. The changes also end programs that previously allowed students and parents to borrow the full cost of attendance.