Federal Student Loan Changes: What Students and Parents Need to Know

3 minute read

Major changes are coming to federal student loan rules, effective July 1, 2026. The "One Big Beautiful Bill" (OBBB) overhauls the framework for student and parent education borrowing and repayment. Families should review these new requirements now to ensure their financial plans remain on track.

Changes to Federal Borrowing Limits

The federal government is implementing stricter caps on several loan programs:

• Elimination of Grad PLUS Loans: The Grad PLUS program will be discontinued for new borrowers. Graduate and professional students will instead be limited to Direct Unsubsidized Loans.
• New Graduate Borrowing Caps:
• Master’s and Doctoral Students: Capped at $20,500 per year with a $100,000 lifetime limit.
• Professional Students (Law/Medical): Capped at $50,000 per year with a $200,000 lifetime limit.

The NC Assist Graduate Student Loan can help students bridge the funding gap after exhausting federal aid options. Graduate students can benefit from a fixed-rate student loan with no application, origination, or prepayment fees. "The NC Assist Loan covers tuition, housing, books, and other fees, with a maximum amount of up to $200,000 for graduate students,” says Lynn Barnette, vice president of loans and financial aid at College Foundation, Inc.

• Parent PLUS Loan Caps: These loans will no longer be "open-ended." Parents will be limited to $20,000 per year and a $65,000 lifetime limit per student.

Parents should explore alternatives, like the NC Parent Assist Loan, if the new limits create a funding gap.

Streamlined Repayment Options

For loans issued on or after July 1, 2026, repayment plans will be replaced by two primary options:

• New Standard Repayment Plan: A fixed payment plan with a term of 10 to 25 years, depending on the total debt amount.
• Repayment Assistance Plan (RAP): This will be the only income-driven repayment (IDR) plan available for new loans.
  • Payments: Based on 1% to 10% of total adjusted gross income (AGI), rather than "discretionary" income, which may result in higher monthly payments for many.
  • Forgiveness: Remaining balances may be forgiven after 30 years, five years longer than many current plans.
  • Interest Benefit: If a borrower's monthly payment does not cover the interest, the government will waive the remaining interest to prevent the balance from growing.

Impact on Existing Borrowers

• Grandfathering: Borrowers with existing loans enrolled in current graduate programs before July 1, 2026, may have up to three years of "legacy eligibility" to continue borrowing under old rules.
• Mandatory Plan Transitions: By July 1, 2028, most legacy IDR plans (such as SAVE, PAYE, and ICR) will be phased out. Borrowers currently on these plans may be required to transition to either the tiered Standard plan, the Income-Based Repayment (IBR) plan or the new RAP.

Public Service Loan Forgiveness (PSLF)

The PSLF program remains intact, but new rules may complicate eligibility:

• Payments made under the RAP or the 10-year Standard Plan will continue to count toward the 120 required payments.
• However, payments under the "New Standard" plan with a term longer than 10 years will not qualify for PSLF.

To stay informed about how the One Big Beautiful Bill (OBBB) affects your education funding, visit StudentAid.gov/bigbill for the latest federal updates.