Student Loan Shake-Up Hits July 1: SAVE Plan Officially Ends, New Repayment Options and Limits Take Effect

WASHINGTON — Millions of federal student loan borrowers face a sweeping set of changes beginning July 1, as the Biden-era SAVE repayment plan is formally wound down and a new set of borrowing limits and repayment options created under President Trump's tax-and-spending law take hold.

The overhaul stems from the One Big Beautiful Bill Act, signed into law last year, which the Trump administration has framed as an effort to streamline a federal student loan system that, until now, offered borrowers seven different repayment plans to choose from. Total federal and private student loan debt in the United States stands at nearly $1.9 trillion, according to data from LendingTree, underscoring the scale of the population the changes will touch.

The most immediate and far-reaching shift involves the Saving on a Valuable Education plan, known as SAVE, which a federal court ruled unlawful on March 10. The plan, the Biden administration's third and final attempt at broad student loan forgiveness, had been tied up in litigation for years and was ultimately wound down through a settlement between the Department of Education and the state of Missouri. Roughly 7.5 million borrowers remain enrolled in SAVE, and starting July 1, their loan servicers will begin sending notices instructing them to choose a new repayment plan within approximately 90 days. Borrowers who fail to act within that window will be automatically enrolled in either the existing Standard Repayment Plan or the newly created Tiered Standard Plan.

Sarah Austin, a policy analyst at the National Association of Student Financial Aid Administrators, described the scope of the overhaul as historic.

"These are the most changes we have seen at this scale," Austin said.

The law replaces the patchwork of existing repayment plans with two new options for anyone borrowing federal student loans for the first time on or after July 1: the Tiered Standard Repayment Plan and the Repayment Assistance Plan, or RAP. The Tiered Standard Plan offers fixed monthly payments calculated to pay off a loan in full over a term ranging from 10 to 25 years, depending on how much a borrower owes, with larger balances stretched over longer repayment windows. RAP, by contrast, ties monthly payments to a borrower's adjusted gross income and number of dependents, charging between 1% and 10% of income depending on earnings, with payments reduced by $50 for each dependent claimed on a borrower's tax return. Unlike the SAVE plan, RAP does not allow for $0 monthly payments; borrowers with no or very low income must still pay a minimum of $10 per month. The income brackets used to calculate RAP payments are not indexed to inflation, meaning the thresholds will not automatically adjust as wages and the cost of living rise over time.

One feature that has drawn some praise from student loan experts is an interest subsidy built into RAP: borrowers who make full, on-time payments that fall short of covering the interest accrued since their prior due date will have that shortfall covered, preventing their balances from growing even if their fixed payment doesn't fully keep pace with interest charges. Existing income-driven plans, including Income-Contingent Repayment and Pay As You Earn, will continue to be phased out and are scheduled to disappear entirely by July 1, 2028, forcing borrowers currently enrolled in those programs to eventually transition again.

Parent PLUS borrowers are among those facing the steepest changes. Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, said her organization has been fielding a steady stream of distress from affected families.

"It's heartbreaking ... we're getting emails from Parent Plus borrowers almost every day," Mayotte said.

Beginning July 1, new Parent PLUS loans taken out for dependent students must be repaid exclusively under the new Tiered Standard Plan, with no option to enroll in an income-driven repayment plan. Existing Parent PLUS borrowers who did not consolidate their loans before the deadline will be left with considerably fewer options going forward. The law also imposes new cap on Parent PLUS borrowing for the first time, limiting parents to $20,000 per year and a lifetime maximum of $65,000 per dependent child.

Graduate and professional students will also see significant changes to how much they can borrow. The Grad PLUS loan program, which previously allowed students to borrow up to their full cost of attendance beyond what direct federal loans covered, is being eliminated. In its place, graduate students will face a strict annual limit of $20,500 for unsubsidized loans, with a lifetime cap of $100,000, though some borrowers already enrolled in their programs may remain eligible under the old rules as they finish their degrees. Students in select professional fields, including pharmacy, dentistry and law, will be subject to a higher cap of $50,000 per year and $200,000 over a lifetime. A federal judge has recently paused the administration's implementation of the regulatory definition used to determine which programs qualify as "professional degrees," leaving some uncertainty around exactly which students will fall under the higher caps.

Austin cautioned that students whose programs cost more than the new federal limits allow may be forced to turn to private lenders to cover the gap, a path she said carries more risk than federal borrowing.

"Private loans are riskier," Austin said, noting they come with fewer borrower protections and that not every student will qualify for them in the first place.

The changes arrive alongside broader concerns among financial aid experts that pushing millions of SAVE borrowers, many of whom enrolled in the plan specifically because it allowed for $0 monthly payments tied to low income, into costlier repayment options could worsen an already troubling rise in student loan defaults. The law also sets a new lifetime borrowing limit of $257,500 across all federal Direct student loans combined, excluding Parent PLUS loans, and tightens the rules around forbearance, capping it at nine months within any two-year period for loans issued on or after July 1, 2027, down from the current 12-month-at-a-time allowance.

Not every change is restrictive. Starting July 1, the traditional Pell Grant program is being expanded to cover short-term workforce training programs in addition to traditional degree paths, giving low-income students access to grant aid, which does not need to be repaid, for a wider range of credentials. The maximum Pell Grant award for the 2026-27 academic year is set at $7,395.

Given the complexity of the transition, borrowers are being urged to review their options carefully rather than assume their current plan will simply continue unchanged. The Department of Education's Federal Student Aid office has published situational guides intended to help borrowers determine which plan best fits their circumstances, and the National Association of Student Financial Aid Administrators has released similar visual resources. Experts say the right choice will vary significantly depending on a borrower's income, family size, loan balance and whether they expect to take out additional federal loans in the years ahead.