Starting July 1, significant changes to student loan repayment plans will take effect, impacting over 43 million Americans with $1.7 trillion in federal student loan debt. The Biden-era Saving on a Valuable Education (SAVE) plan, which allowed for flexible and generous income-driven repayment, will come to an end. Borrowers enrolled in SAVE will need to switch to a new plan, with a 90-day window to make a change.
The changes, part of the One Big Beautiful Bill Act, will introduce two new repayment plans: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan. These plans will be available to borrowers who take out loans on or after July 1. Existing borrowers with loans issued before July 1 will have more repayment options, including income-driven plans.
Student Loan Repayment Options
Borrowers will need to navigate the new repayment plans, which may result in higher monthly payments. Financial aid experts warn that this could lead to an increase in student loan defaults, particularly among low-income borrowers who qualified for $0 monthly payments under the SAVE plan. The U.S. Department of Education recommends using the Loan Simulator to determine the best repayment plan.
For new borrowers, lending limits will be introduced, capping graduate students’ borrowing at $20,500 per year and $100,000 total. Certain professional degrees, such as medicine and law, will be exempt from these limits, with higher borrowing caps of $50,000 per year and $200,000 total.
Impact on Borrowers
The changes will have significant implications for borrowers, particularly those who relied on the SAVE plan for affordable monthly payments. With the introduction of new repayment plans and lending limits, borrowers will need to reassess their financial situations and plan accordingly. The U.S. Department of Education will enroll borrowers in a repayment plan if they do not make a selection within the 90-day window.
The new repayment plans and lending limits will likely lead to increased costs for borrowers, making it essential for individuals to understand their options and plan carefully. As the student loan landscape continues to evolve, borrowers must stay informed to manage their debt effectively.
