finance
New federal student-loan repayment plans and borrowing limits take effect July 1
Two new repayment plans and limits on graduate borrowing replace prior options for federal student loans. Borrowers on the SAVE plan must select a replacement within 90 days or be moved automatically.
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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.
