Changes to student loans are taking effect July 1. Here’s what to know

NEW YORK (AP) — Changes to federal student loans expected to affect millions of borrowers are taking effect July 1. A part of President Donald Trump’s “Big Beautiful Bill,” these changes mean the end of some payment plans and new limits for graduate loans.

Along with the end of the Biden-era SAVE plan, the changes are expected to raise the cost of payments for millions of borrowers.

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“The main concern is the affordability of monthly payments. I think a lot of people are simply going to see their payment increase significantly and they’re either going to have to stretch pretty significantly to make that payment work or they’re not going to be able to make the payment,” said Michele Zampini, an associate vice president at The Institute for College Access & Success.

Around 9 million Americans are in default on their federal student loans as of June, according to the Education Department. Hundreds of thousands more are behind on loan payments and at risk of default this year.

Earlier this month, Education Department officials said borrowers who are enrolled in auto pay will be eligible for a 1% rate reduction beginning July 1. However, borrowers who currently use auto pay already receive an interest-rate discount of 0.25%, so the new reduction takes off just 0.75%. For all borrowers, the rate reduction will be temporary, lasting through June 2028.

If you’re a student loan borrower, here are some key things to know:

SAVE plan comes to an end

The SAVE plan was a repayment option with some of the most lenient terms ever offered by the government. Soon after its launch it was challenged in court, leaving millions of student loan borrowers in limbo. Earlier this year, the U.S. Court of Appeals for the 8th Circuit struck down the SAVE plan, which ended Wednesday.

There are about seven and a half million borrowers in the SAVE plan and servicers will begin sending them official notices Wednesday, said Lindsay Vail Clark, chief borrower advocate at Savi, a student loan debt assistance platform.

Borrowers enrolled in the SAVE plan will be notified that they have 90 days to enroll in another income-driven repayment plan. Vail Clark recommends borrowers start checking their options as soon as possible because processing delays are likely. If borrowers don’t enroll in another plan before the 90-day deadline, they will be auto-enrolled in one of the standard options by the Education Department, said Vail Clark.

However, there’s no specific deadline for all borrowers enrolled in the SAVE plan to find another plan. This is because notices will be going out on a rolling basis, said Zampini.

Changes in graduate school loan caps

Trump’s “ Big Beautiful Bill ” changed the amounts graduate students can borrow for various programs, but his administration revised that plan this week in line with a judge’s order.

Under the new rule, programs designated as professional degrees face federal student loan caps of $200,000, while other graduate programs are capped at $100,000. Previously, graduate students had been able to take out federal loans up to the full cost of their degree.

For now, the administration’s revised plan restores eligibility for students pursuing graduate degrees in nursing, physical therapy and several other fields to take out higher federal student loan amounts. The initial rule had held them to lower limits.

Changes to Parent PLUS Loans

Parent PLUS Loans have had fewer repayment options but now, the options are being reduced further, said Zampini. New limits on Parent PLUS loans cap them at $20,000 per student, and $65,000 per family.

Additionally, Parent PLUS borrowers who take out new loans on or after July 1 will not have access to any income-driven repayment plans, only a new tiered standard payment plan.

“Going forward, they’re basically only going to have the standard payment option and there’s not going to be any caveat or any safety net to adjust that based on income, if they have a low income or if they have an income fluctuation or some kind of other hardship,” Zampini said.

Parent PLUS Loan borrowers who consolidated their Parent PLUS Loans into a Direct Consolidation Loan before July 1 can repay their loans through the income-contingent repayment plan until June 30, 2028. After that date, borrowers will be moved to the income-based repayment plan.

Enrolling in income-driven repayment plans

Current borrowers can apply for the following income-driven plans: the Income-Based Repayment Plan, the Pay as You Earn plan, and the Income-Contingent Repayment plan. The payment amount under income-driven plans is a percentage of the borrower’s discretionary income, and the percentage varies depending on the plan.

However, students who take loans on or after July will only be able to enroll in one income-driven repayment plan: the Repayment Assistance Plan. Borrowers can also use Tiered Standard Plan, a payment plan with a fixed amount that ensures loans are paid off within 10-25 years.

You can find out which repayment plan might work best for you by logging on to the Education Department’s loan simulator.

If you’re working toward your Public Service Loan Forgiveness

There are no changes to the Public Service Loan Forgiveness Program, despite a Trump administration plan announced last year to change the eligibility requirements for participating nonprofits. The policy sought to disqualify nonprofit workers if their work is deemed to have “substantial illegal purpose.” The Trump administration said it’s necessary to block taxpayer money from lawbreakers, while critics said it turns the program into a tool of political retribution.

Two separate federal judges struck down the new rules on Tuesday, a day before they were due to take effect.

If your student loans are in default

Involuntary collections on federal student loans remain on hold. The Trump administration announced earlier this year that it is delaying plans to withhold pay from student loan borrowers who default on their payments.

Federal student loan borrowers can have their wages garnished and their federal tax refunds withheld if they default on their loans. Borrowers are considered in default when they are at least 270 days behind on payments.

If your student loans are in default, you can contact your loan holder to apply for a loan rehabilitation program. Through this program, borrowers are enrolled in a reduced payment plan and, after five successful payments, wage garnishment ends.

Borrowers can find more information about loan rehabilitation here.

If you want to consolidate your loan

The online application for loan consolidation is available at studentaid.gov/loan-consolidation. If you have multiple federal student loans, you can combine them into a single loan with a fixed interest rate and a single monthly payment.

The consolidation process typically takes around 60 days to complete. You can only consolidate your loans once.

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