Key Takeaways
- Student Loan Overhaul reduces federal Student loan repayment options to two beginning July 1.
- New federal borrowing caps limit graduate and Parent PLUS loans.
- Millions of SAVE borrowers must switch repayment plans within 90 days.
Millions of federal student loan borrowers face significant changes beginning July 1 as the Trump administration introduces new repayment plans, eliminates existing options, and imposes borrowing limits aimed at reducing federal student debt.
About 43 million Americans hold nearly $1.7 trillion in federal student loan debt, according to the Office of Federal Student Aid. The changes stem from provisions in the Working Families Tax Cuts Act and additional executive actions affecting the Department of Education.
The Student Loan Overhaul eliminates several repayment options, including the Biden administration’s Saving on a Valuable Education, or SAVE, plan. About seven million borrowers enrolled in SAVE have 90 days to switch to a new repayment plan.
New borrowers now have only two repayment choices: the Repayment Assistance Plan, known as RAP, or the Tiered Standard repayment plan. The Department of Education said reducing the number of options will simplify repayment and help borrowers stay current on their loans.
Education advocates, however, said the Student Loan Overhaul could increase monthly costs for many borrowers. The Institute for College Access & Success said some households could see payments rise by hundreds of dollars each month, increasing the risk of loan defaults.
“The changes may make repayment more difficult for lower-income borrowers,” the organization said in its analysis.
Federal Loan Caps Limit Graduate Borrowing
As part of the Student Loan Overhaul, new rules establish borrowing limits for graduate and professional students.
Graduate students pursuing master’s degrees may now borrow up to $20,500 annually and $100,000 over the life of their studies. Students attending professional programs, including law and medical schools, may borrow up to $50,000 per year and $200,000 in total.
Parent PLUS loans are now subject to a lifetime borrowing cap of $65,000. In most cases, total federal borrowing for graduate education cannot exceed $257,500.
Clare McCann, policy director at the Postsecondary Education & Economics Research Center, said the restrictions could reduce access to graduate education.
“This may end up being a bit of an overcorrection,” McCann said. “We could see implications for student access.”
The Department of Education defended the policy, saying the limits are intended to reduce excessive borrowing and encourage colleges and universities to control tuition costs.
Education Department Urges Borrowers to Act
Department of Education Under Secretary Nicholas Kent encouraged borrowers to review the new repayment options and return to active repayment.
“Affordability is the name of the game right now,” Kent said. “These loan caps will put downward pressure on institutions to lower their costs.”
The department has launched an online repayment calculator to help borrowers estimate monthly payments and compare available plans. Officials said borrowers can apply for the new repayment options through StudentAid.gov in about 10 minutes.
Kent also emphasized that widespread federal student loan forgiveness will not move forward after the Supreme Court struck down former President Joe Biden’s loan forgiveness program in 2023. The court ruled that the administration exceeded its authority under the HEROES Act.
Borrowers currently enrolled in the discontinued SAVE plan are encouraged to choose a replacement repayment option before the transition period ends to avoid potential disruptions under the Student Loan Overhaul.
Visit Future Education Magazine to read more.