CINCINNATI — Major changes to the federal student loan program start to take effect July 1 under the One Big Beautiful Bill Act enacted in the summer of 2025.
The changes affect borrowers already in repayment, students currently enrolled in degree programs and those who have not yet started their course of study.
Sarah Young, CFP, a financial planner and founder of flat fee financial planning firm Live and Give Financial, said the changes will be felt differently depending on where a borrower is in their education and repayment journey. Here's what you need to know.
Borrowers on the SAVE plan
Borrowers currently enrolled in the SAVE plan will be able to stay on that plan for an additional 90 days. After that period, the default transition will be to the new Repayment Assistance Plan.
"If you don't want to go on to the RAP plan for one reason or another, then it's important to take action quickly, because the wait times to switch onto a different plan are going to be pretty significant," Young said.
Borrowers will have 90 days to enroll in either the RAP or the Tiered Standard Repayment Plan.
How the RAP Plan works
The RAP plan calculates monthly payments based on income as filed on tax returns and the number of dependents a borrower has. Unlike the SAVE plan, the RAP plan does not include automatic interest subsidies.
Young said the RAP plan tends to be more beneficial for borrowers with around $65,000 to $70,000 in annual household income, but noted that individual calculations are necessary.
One significant distinction is that the RAP plan can also apply a subsidy to the principal loan balance, not just the interest, meaning borrowers may make a more meaningful dent in what they owe. However, for borrowers with higher incomes, there is no cap on how high monthly payments can go under the RAP plan.
Young also noted a critical limitation.
"Once you get into the RAP plan, you cannot go back onto a different income-driven repayment plan. So that's really important to understand as you make that decision that it's a one-way street," Young said.
The PAYE plan: A two-year option
Young said there is another option borrowers should be aware of: the Pay As You Earn, or PAYE, plan.
Borrowers can still opt into the PAYE plan now and remain on it for up to two years. Unlike the RAP plan, the PAYE plan includes a cap on how high monthly payments can go, making it a potentially advantageous option for some borrowers in the near term.
The PAYE plan will sunset on July 1, 2028, at which point borrowers will need to make another repayment decision.
WATCH: How the new changes will impact your wallet
RAP plan vs. Tiered Standard Repayment
The Tiered Standard Repayment Plan offers fixed payments over the life of the repayment term. The RAP plan, by contrast, adjusts on a year-over-year basis as income fluctuates and requires annual recertification.
"The total repayment is going to be less certain and reevaluated," Young said.
Who is most impacted
Young said there are three broad categories of borrowers affected by the July 1 changes.
Borrowers already in repayment are likely to see the most immediate impact in the form of higher monthly payments.
Borrowers who have started their programs but have not yet begun repayment will not have a prior payment amount to compare against, but the total amount paid over the life of their loans is likely to be higher.
Borrowers whose loans have not yet been disbursed as of July 1 will be subject to an entirely different set of repayment plan options and new borrowing limits. The SAVE plan will not be available to this group. Young said this group will likely feel the most significant impact from the changes overall.
New borrowing limits and professional degrees
For students whose first loan has not yet been disbursed, new federal borrowing limits will apply based on the type of degree being pursued. The federal government's definition of a professional degree will determine how much a student can borrow on an annual basis.
If the cost of attendance at a chosen school exceeds what the federal government is willing to loan, students will need to pursue private loans to cover the difference or consider selecting a different school. Young said that private loans typically carry higher interest rates and do not offer the same forgiveness options as federal student loans.
"It's important as these changes are happening to reevaluate the list of schools that you're applying to and planning to enroll in and determine if the cost of attendance, with these new guidelines and restrictions around what those borrowing limits are, how that fits into your plan and what those monthly repayments are going to be on the back end," Young said.
Students who are already enrolled in a degree-seeking program are grandfathered in under the current borrowing limits, provided their first loan has already been disbursed.
A warning about loan consolidation
Young flagged one additional consideration that borrowers may overlook.
"For a long time it was common for people who had student loans to consolidate their loans into a single loan to make payments easier and just easier to keep track of. If you consolidate your loans, that will be disbursing a new loan," Young said.
She said that unless a borrower intentionally wants to move into one of the new repayment plans, consolidating loans could lock them out of legacy repayment plans and have a significant impact on the total cost of repayment over the life of the loan.
Advice for borrowers and families
Young said the most important step any borrower or family can take right now is to run the numbers before making any decisions.
"Make sure that you have a clear understanding of what your current year situation is, as well as a good sense of what you're planning and anticipating for the next few years, because some of these decisions you can't take back, and you can't change once you enroll in some of these plans," Young said.
The U.S Department of Education created a repayment calculator on its website where students can calculate their monthly bills and compare plans.
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