Don't wait: What borrowers need to know about changing student loan plans
DALLAS - Melissa Brennan put her son through law school, and thought she would be able to help her daughter get through medical school. But significant changes to federal student loan repayment plans that begin on July 1 could shape her daughter’s future.
If Brennan’s daughter gets into an in-state school like the University of Texas Southwestern Medical School, she could live at home and her parents could help cover expenses. However, because medical school is hard to get into, her daughter might not have that choice.
“If she goes out of state, then, in that case, not having access to Grad Plus loans could be a big deal,” Brennan, who is a financial planner based in the Dallas area with ARS Private Wealth, said.
Changes coming
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.
Several of these changes go into effect starting July 1. Depending on their repayment plan, some borrowers will need to pick a new plan within a 90-day window.
Some plans will end or be phased out. Other changes include new loan limits on certain programs, the creation of two repayment plans and additional regulations.
These changes have the potential to affect millions of borrowers who carried an average of $33,770 in student debt in 2025, according to the Education Data Initiative.
Brennan advised borrowers to learn about their options as soon as possible.
“The first step is to know what your cash flow is,” Brennan 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 recommended 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.”
Here are some key details for existing and new borrowers to consider as these changes roll out:
People on the Saving on A Valuable Education plan, or SAVE, have to switch repayment plans.
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.
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 (IBR); Income-Contingent Repayment, or ICR; or Pay As You Earn, or PAYE, 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, or RAP; IBR; or standard, graduated or extended repayment plans starting on July 1, 2028.
Two repayment plans are being created for new and existing borrowers.
The federal government is rolling out two repayment plans. 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.
Brennan recommended selecting a plan based on income rather than a fixed term, if borrowers have the option.
“You want to maintain flexibility,” Brennan said. “Keep your payment less than what you can really afford but then overpay aggressively.”
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, according to Brennan.
Some professional or graduate borrowers may qualify for an interim exception. They can check their status at https://studentaid.gov/.
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 will only be eligible to be moved to the Tiered Standard Plan, which is a fixed payment.
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 only rehabilitate their loans once. The updated policy will begin on July 1, 2027.
Bottom line
Some advice about student loans remains constant, according to Brennan, who suggested using the same strategy she and her husband did to pay off his student loans. They repaid all of his debt before deciding to have children.
“The bottom line with student loan repayment is pay it off as soon as you can,” Brennan said. “It’s better to have that debt repaid and minimize the cost of that debt than to carry it forward for 20 years.”
These policies will begin to take place on July 1. People can check the status of their student loan repayment plans and explore their options at https://studentaid.gov/.
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This story was originally published June 15, 2026 at 2:16 PM.