New Federal Student Loan Rules Take Effect July 1

New federal student loan rules took effect Wednesday, altering repayment options, borrowing limits, and interest rates for millions of borrowers. The changes stem from last year’s spending bill, known as the One Big Beautiful Bill Act, and a separate Education Department announcement made in June.

Borrowers taking out loans on or after Wednesday must use either a standard repayment plan or the new Repayment Assistance Plan, or RAP. The standard plan sets fixed monthly payments over 10 to 25 years depending on the loan balance. Under RAP, payments are calculated as a percentage of income, ranging from $10 per month for borrowers earning under $10,000 to 10 percent of gross income for those earning over $100,000.

Remaining balances are forgiven after 30 years of payments.

Borrowers with loans issued before Wednesday can remain on older plans, though several of those plans will be phased out by July 2028. Borrowers currently enrolled in the SAVE plan must select a new plan within 90 days or be automatically reassigned.

The legislation caps new graduate loans at $100,000 total for most programs and $200,000 for professional programs such as medical school. Parent PLUS loans are now limited to $65,000 per student. All borrowers face a lifetime cap of $257,500 in federal student loans.

The bill also tightens Pell Grant eligibility by disqualifying students whose student aid index is at least twice the maximum grant amount.

Borrowers who enroll in auto-pay by September 30 will receive a 1 percent interest-rate cut through June 30, 2028. Those already using auto-pay receive the reduction automatically.

A separate executive order restricting Public Service Loan Forgiveness remains blocked by a federal court ruling issued earlier this week. Litigation over the order is ongoing.