Terry Savage Breaks Down the New Student‑Loan Rules

On July 1, 2026 a whole new set of student‑loan rules went live, swapping the familiar, sometimes confusing menu of repayment plans for just two choices and tighter borrowing limits. If you’re a parent about to sign a new loan paper or a senior gearing up for her final semester, you’ll want to read this carefully.

First, a heads‑up for parents. Any new Parent PLUS loan that is disbursed on or after July 1, 2026 can wipe out the legacy income‑driven repayment options you may have relied on for earlier loans. In plain English: take out even one more PLUS loan and you could lose the ability to shift those older loans into the low‑payment, income‑based plans that kept monthly bills manageable.

On top of that, the government has slapped a hard ceiling on Parent PLUS borrowing – $20,000 per year and a total of $65,000 per student. That’s a big change from the old cost‑of‑attendance model, which let families borrow far more.

What about the students themselves? Starting July 1, 2028, anyone who has a loan that was first taken out on or after July 1, 2026 will only be eligible for a single income‑driven plan: the Repayment Assistance Plan (RAP). In other words, the older “SAVE,” “PAYE,” or “ICR” programs are gone for those newer loans.

So, if your child is in her senior year and you’re thinking about adding another federal loan, pause for a moment. The new loan could strip away the more favorable repayment terms you thought you had locked in. In some cases, a private loan with a lower interest rate might actually make more sense for that final year.

The two repayment options that remain for loans disbursed after July 1, 2026:

• Repayment Assistance Plan (RAP) – an income‑driven scheme where payments range from 1 % to 10 % of adjusted gross income, with a floor of $10 per month, interest subsidies and up to $50 of principal reduction each month. Full forgiveness kicks in after 30 years.
• Tiered Standard Plan – a more traditional schedule that spreads payments over 10 to 25 years, depending on how much you owe. Bigger balances get longer terms.

Both of these plans generally produce higher monthly payments than the legacy plans many borrowers are used to. The Department of Education has given roughly 7 million people who are currently on a discontinued plan just 90 days to pick a new plan or be auto‑assigned to the Tiered Standard option.

If you’ve been paying under SAVE, PAYE, or ICR, you should already have heard from your loan servicer. Don’t sit on that notification – call them right away, ask about RAP, and see if it truly offers the lowest payment you can manage. The alternative is a default into a higher‑payment standard schedule.

For a quick, back‑of‑the‑envelope estimate, the repayment calculator on StudentAid.gov can be helpful. Just remember the assumptions are just that – estimates, not guarantees.

New borrowing caps are also in effect. Undergraduate federal loans stay the same – $5,500 to $12,500 per year depending on class standing, with total limits ranging from $31,000 to $57,500. Graduate loans are capped at $20,500 per year and $100,000 overall. Professional programs (law, med, pharmacy, etc.) can borrow up to $50,000 per year, maxing out at $200,000. Everyone now faces a lifetime federal loan limit of $257,500, not counting Parent PLUS loans.

Good news for those working in public service: the Public Service Loan Forgiveness (PSLF) program is still alive. After a brief court‑driven scare, the earlier proposed restrictions never took hold. RAP payments count toward the 120‑payment requirement for PSLF, as long as you’re employed full‑time with a qualifying employer.

Rae Kaplan of FinancialRelief.com puts it bluntly: “We’re in one of the most confusing eras of federal student‑loan policy. One extra Parent PLUS loan or the wrong repayment selection can cost a family tens of thousands of dollars. Get qualified advice before you sign anything you can’t undo.”

Bottom line? Whether you’re a parent about to sign for a junior’s tuition or a senior eyeing that last semester, take a breath, run the numbers, and talk to a trusted adviser. The stakes are higher than they used to be, and a misstep now can echo for decades.

— The Savage Truth