What Student Loan Borrowers Need to Know Before July 1, 2026

May 29

Written By Adrienne Ross, CFP®, ChFC®, AFC®, MQFP®

*Sweeping changes to federal student loans stemming from the OBBBA will take effect on July 1, 2026.*

July 1, 2026 is a pivotal date for anyone with federal student loans. And for many families, the clock is already ticking. Sweeping changes stemming from the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, will take effect on July 1, 2026. New repayment plans launch, others begin to phase out, borrowing limits shift, and important deadlines expire. Whether you're currently repaying loans, a parent borrower, or a public service employee, this is the moment to review your situation.

Here's a clear-eyed overview of what's changing and what it means for you.

1. A New Repayment Plan Arrives — and Most Others Begin to Disappear

The most significant change on July 1 is the launch of the Repayment Assistance Plan (RAP). RAP will be available to all federal Direct Loan borrowers except those with Parent PLUS loans. Payments under RAP are calculated as 1%–10% of your adjusted gross income (AGI), and the plan offers forgiveness after 30 years.

At the same time, PAYE and ICR plans will stop accepting new enrollees on July 1, 2026, and will sunset permanently by July 1, 2028. After that date, borrowers still on those plans will be automatically moved to RAP or IBR. Income-Based Repayment (IBR) is the only legacy income-driven plan that survives indefinitely. It will remain available for loans disbursed before July 1, 2026.

On March 10, 2026, a federal court entered a judgment that vacated the 2023 rules that created the SAVE plan. For those currently enrolled in the SAVE Plan, you will have 90 days from July 1, 2026, to switch repayment plans. If you do not enroll in a different repayment plan, a plan will automatically be assigned to you. It is likely that the Standard Repayment Plan will be the default.

What this means for you:

If your loans predate July 1, 2026, you can stay on your current plan, switch to IBR, or opt into RAP voluntarily, but you'll need to choose before 2028.

If you're close to forgiveness on an existing plan, switching to RAP could reset your forgiveness timeline, so proceed carefully. In fact, switching from IBR to RAP and back for any reason will result in payments made under RAP not counting toward the timeline for loan forgiveness. The rules are complex and full of details that can lead to unintended consequences.

If you are pursuing loan forgiveness under the Public Service Loan Forgiveness program, you must be in an Income Driven Repayment Plan. As of July 1, 2026, for most borrowers, the options will be the Income Based Repayment (IBR), RAP, or the 10-Year Standard Repayment Plan. Certain borrowers may have access to PAYE.

New loans disbursed on or after July 1, 2026, will only have two options: RAP or the new Standard Repayment Plan.

2. Parent PLUS Borrowers Face a Critical June 30 Deadline

This is the most time-sensitive change for parents who have borrowed on behalf of their children. Parent PLUS borrowers who have not consolidated into a Direct Consolidation Loan by June 30, 2026, will permanently lose access to every income-driven repayment plan, including ICR, IBR, and RAP. That also means no path to forgiveness through IDR or Public Service Loan Forgiveness.

This is a disbursement deadline, not just an application deadline. Your consolidation loan must be fully processed by June 30. If you haven't acted yet, contact your loan servicer immediately.

Important caution: If you take out a new Parent PLUS loan on or after July 1, 2026, existing consolidated Parent PLUS loans may lose IDR eligibility. Consult a financial advisor before borrowing further.

Going forward, new Parent PLUS borrowers will face annual limits of $20,000 per dependent student and a lifetime cap of $65,000 per student; a significant shift from the previous structure, which allowed borrowing up to the full cost of attendance.

3. Graduate and Professional Student Borrowing Limits Change Significantly

Graduate PLUS loans are eliminated for new borrowers starting July 1, 2026. Graduate students will be limited to $20,500 per year and $100,000 lifetime cap. Professional students (a category currently expected to include primarily MD, JD, and DDS programs) will have higher limits of $50,000 per year and $200,000 lifetime.

Students in fields like social work, physical therapy, and nursing, which are not currently classified as professional programs, will be subject to the lower graduate caps, a change education groups have flagged as a potential barrier to workforce development.

A legacy provision exists: students already enrolled in a graduate or professional program who borrowed federal loans before July 1, 2026, may continue borrowing at current limits for up to three more years, provided they stay in the same program without interruption.

Annual loan amounts will also be prorated by enrollment status under a new formula, meaning part-time students will receive proportionally less than full-time students.

The bottom line: Students who need to borrow above the new caps may need to look for other options to fund their education. This may include private loan options, which typically carry higher interest rates and lack the borrower protections of federal loans.

4. PSLF Employer Eligibility Is Narrowing

Public Service Loan Forgiveness (PSLF) remains in place. However, a separate Department of Education rule effective July 1, 2026, introduces a new "substantial illegal purpose" standard that allows the Secretary of Education to disqualify certain employers.

Public schools, state universities, and 501(c)(3) nonprofits continue to qualify. Borrowers should monitor any communication from the Department of Education if there's any question about their employer's status. The rule is currently being challenged in federal courts, and the situation may evolve before July 1.

The 120-qualifying payments, under a qualifying payment plan, while working for a qualifying employer, 10-year structure for PSLF forgiveness is unchanged.

5. A Note on Forgiveness and Taxes

The temporary federal tax exclusion on forgiven student loan balances expired on December 31, 2025. IDR forgiveness discharged in 2026 or later is now taxable at the federal level, unless you qualify for an exception such as the insolvency exclusion. PSLF forgiveness remains tax-free.

If you're approaching forgiveness on an income-driven plan, it's a good time to model the potential tax impact with a financial professional.

*The right path forward depends on your individual situation*

What You Should Do Now

Here's a quick checklist to review before July 1:

Parent PLUS borrowers: If you want to preserve income-driven repayment options, apply to consolidate now. Your loan must be disbursed by June 30.

Current IDR borrowers on PAYE, ICR, or SAVE: You have until July 1, 2028, but it's worth comparing IBR and RAP now so you're not making a rushed decision later.

Graduate and professional students: Confirm your enrollment status and borrowing history to understand whether the legacy provision applies to you.

PSLF borrowers: Verify your employer's qualifying status and keep an eye on court rulings related to the new eligibility rule.

Anyone approaching IDR forgiveness: Work with a financial advisor to understand the new tax implications before your forgiveness date.