The New Rules for Student Loans

image of a pink piggy bank with a graduation cap on its head and coins flying above

(Image credit: Getty Images)

Sweeping changes are coming to student loans, courtesy of President Trump’s so-called "big beautiful bill." Almost everyone with a federal loan for higher education will be affected — including the more than 9 million Americans older than age 50 with student loans — as well as families who will need to borrow in the future to cover college costs.

The new rules, which kick in next July, reduce the number of payment plans available to families to repay college loans to a single option for parents and two for students, based on loan size or income.

The amount families can borrow will be sharply limited, too. And while many provisions affect future borrowers only, some families who are already repaying loans will be forced to switch plans as well.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

The net effect? “The bill simplifies the student loan repayment process, since currently there are a lot of similar plans that cause borrowers confusion,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. “But it will also cause many borrowers’ payments to go up fairly significantly, and its limitations on the amounts that parents and students can borrow will reduce access to college and choice of schools for many families.”

Whether you’re currently paying off education loans, you’re helping a child manage student debt, or you will need to borrow for future college bills, the new law will likely shake up your plans. Here’s what you need to know about the changes to come.

If you are repaying parent loans now

Some 3.6 million Americans are currently paying back a loan — an average of $31,750, according to the Department of Education — taken out under the federal Parent PLUS program to help their child get a college degree.

Under the present system, you have a few options for repaying the loan. They include the standard plan, with fixed monthly payments for 10 years and, for borrowers who owe more than $30,000, a plan that stretches fixed payments over 25 years.

Parents who consolidate PLUS loans from different school years into one federal loan are also eligible for an income-based plan that can lower payments. Any remaining balance is forgiven after 25 years — or as little as 10 years if you qualify for public service loan forgiveness as a government or nonprofit employee.

All that is due to change. Starting in July 2026, there will be only one repayment plan for new parent borrowers, with fixed monthly payments spread over 10 to 25 years, depending on how much you owe. You will also no longer be able to switch to an income-based plan by consolidating loans or have access to public service loan forgiveness.

What to do

If you’re paying back a PLUS loan under a standard repayment plan and the monthly amount is manageable, you don’t have to do anything. But if you’d benefit, now or in the future, from lower monthly payments — say, if you’re likely to retire while you’re still repaying the loan — or if you might qualify for public service loan forgiveness, your best bet is to consolidate your PLUS loans into a single federal loan, then enroll in an income-based repayment plan before the new law shuts down this strategy.

“The drawbacks to consolidation are few and doing so now will preserve your access to an income-driven plan if you need it in the future,” says student loan expert Mark Kantrowitz.

One caveat: Income-Contingent Repayment (ICR), the only income-based plan available to parents now, could result in a higher monthly payment than a standard 10-year plan. Once the law takes effect, though, borrowers will move to the lower-cost Income-Based Repayment plan (IBR), with payments likely capped at 15% of discretionary income, Kantrowitz says.

If you are helping a child with student debt

If you’re looking to advise a child who is currently paying off federal student loans, or you’re among the millions of older adults still repaying debt for your own education, prepare for steeper monthly payments soon.

That’s because the new law eliminates three of the four income-based repayment plans now available to student borrowers — including the popular SAVE (Saving on a Valuable Education) and PAYE (Pay As You Earn) options, which cap monthly payments at 5% to 10% of discretionary income and typically result in the lowest monthly payments. Anyone enrolled in those plans, as well as the ICR plan, will need to switch to IBR, the sole remaining income-based plan, by June 30, 2028. Anyone now on an IBR plan can stay on it.

Current borrowers could also move to the law’s new income-based option called the Repayment Assistance Plan (RAP). Under RAP, monthly payments range from 1% to 10% of a borrower’s income, with a minimum payment of $10. The government will waive any interest that the payment doesn’t cover and provide a subsidy to ensure the principal is reduced by at least $50 a month. Any balance remaining after 30 years will be forgiven, versus 20 or 25 years under existing IBR plans.

What to do

For a student with a typical debt load (about $38,000 in 2024) who earns between $30,000 and $80,000 a year, RAP will generally result in a lower monthly payment, according to the Student Borrower Protection Center. But at higher incomes, the existing IBR option looks better on a monthly cost basis and also gets you debt-free five to 10 years sooner.

“If your child decides to move to RAP, they must be certain it’s their best option, as they may be unable to leave the plan once enrolled,” warns Fred Amrein, founder of PayForED, a software platform that helps borrowers navigate student loans.

If you are planning for college costs

The new law puts a cap on parent and graduate student borrowing, limiting the amount and kinds of financing families can use to pay future education costs.

While current rules allow you to borrow enough with a Parent PLUS loan to cover the full cost of attendance, minus any financial aid your child receives, the lifetime federal loan limit under the new law is $65,000 per student.

The new legislation also limits graduate students to $100,000 in loans, or $200,000 for professional programs such as law or medical school.

What to do

If your child is already in college, don’t stress too much about the new loan limits.

There’s an exception in the law that allows current PLUS borrowers to take out loans under the old limits for the time it takes to earn the degree or three years, whichever is less. To avoid borrowing more than you can comfortably afford, though, exhaust other forms of financial assistance first, and limit PLUS loans for all your children to no more than the equivalent of your annual income, Kantrowitz says.

Have an incoming college freshman this year? Be aware that the new limits may impact financing for senior year, because the exception expires on July 1, 2028, says Amrein.

For parents of younger children, affordability should become an even greater focus when choosing a college, Amrein says. So will strategies to cut costs, says Mayotte, such as attending a lower-priced school for the first two years, then transferring into the desired college, or commuting to school rather than living on campus.

Says Kantrowitz, “Students and families need to be much more price sensitive because they can’t count on Parent PLUS loans to pick up the slack.”

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Kerri Anne Renzulli is an award-winning personal finance journalist whose work has been featured in the Wall Street Journal, USA Today, AARP, Newsweek, Money, CNBC, Fortune, Mansion Global and Financial Planning Magazine. She has written about student loans, taxes, banking, retirement planning and other complex financial issues for more than a decade.