GOP Student Loan Overhaul: Borrowing Caps, Repayment, and SAVE

The GOP student loan overhaul, enacted as the One Big Beautiful Bill Act on July 4, 2025, reshapes federal student borrowing on almost every front: it ends Graduate PLUS, caps how much graduate students and parents can borrow, replaces the menu of income-driven plans with a single new option called the Repayment Assistance Plan, formally terminates the SAVE plan, and ties a program’s federal loan eligibility to how much its graduates earn. Most provisions take effect July 1, 2026.¹²

What You Can Borrow Now

Undergraduate loan limits do not change. Annual and aggregate caps for dependent and independent undergraduates stay where they were, and subsidized undergraduate loans remain in place.³⁴

Graduate students, professional students, and parents face the real changes:

The Graduate PLUS loan program is eliminated as of July 1, 2026. Graduate students who were enrolled before that date and already hold a federal loan may continue borrowing under the old rules for up to three academic years, or the rest of their program, whichever is shorter.⁵⁶
Graduate students in non-professional programs are capped at $20,500 per year and $100,000 in aggregate.⁵
Professional students are capped at $50,000 per year and $200,000 in aggregate. Eleven designated fields qualify for the professional limits, including medicine, law, dentistry, pharmacy, and veterinary medicine.⁷
Parent PLUS is capped at $20,000 per year per dependent student and $65,000 total per student across all parents combined. The old cost-of-attendance ceiling with no aggregate limit is gone.⁸⁹
A new lifetime cap of $257,500 applies across all federal student loans (Parent PLUS excluded) to anyone receiving a disbursement on or after July 1, 2026.⁵

Part-time enrollment is prorated. A three-quarter-time student, for instance, can borrow only three-quarters of the applicable annual limit.¹⁰

How Repayment Works Under the New Rules

For loans taken out on or after July 1, 2026, the plan menu shrinks to two: a tiered standard plan with fixed payments over 10 to 25 years (the term depends on the amount borrowed), and a new income-driven option called the Repayment Assistance Plan, or RAP.¹¹

RAP calculates the monthly payment as a percentage of total adjusted gross income, on a graduated scale:

AGI up to $10,000: $120 per year ($10 per month)
$10,001 to $20,000: 1% of AGI
$20,001 to $30,000: 2% of AGI
$30,001 to $40,000: 3% of AGI
$40,001 to $50,000: 4% of AGI
$50,001 to $60,000: 5% of AGI
$60,001 to $70,000: 6% of AGI
$70,001 to $80,000: 7% of AGI
$80,001 to $90,000: 8% of AGI
$90,001 to $100,000: 9% of AGI
Above $100,000: 10% of AGI¹²

Each dependent child knocks $50 off the monthly payment, but the floor is $10. There is no $0 payment.¹³ Unlike older income-driven plans, RAP applies its percentage to total AGI, not to income above a poverty-line exclusion.¹²

Two features are meant to prevent balances from growing while borrowers pay. If the required payment is less than the accrued interest, the government waives the unpaid interest. If the payment is not enough to reduce principal by $50 in a month, the government subsidizes the difference so principal drops by at least $50.¹⁴ The law also ends interest capitalization, so unpaid interest is no longer folded into the principal balance.¹³

Any remaining balance is forgiven after 30 years of qualifying payments. That forgiveness is treated as taxable income, and the 30-year timeline is longer than the 20 or 25 years under earlier income-driven plans. A borrower who chooses RAP cannot switch back to the standard plan.¹³¹⁵

If You Already Have Loans

Borrowers whose loans were issued before July 1, 2026, are not immediately pushed into RAP, but their options narrow. The Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans are being phased out, and borrowers on legacy plans must transition to new options by July 1, 2028.¹¹³

One change works in current borrowers’ favor. The “partial financial hardship” requirement for Income-Based Repayment has been removed. Federal Student Aid implemented the change in December 2025, opening IBR to borrowers with loans made between July 1, 2014, and July 1, 2026, who had previously been ineligible. Parent PLUS borrowers can now use IBR too, but only if they first consolidate their loans and enroll briefly in ICR. Because ICR itself is being phased out, that pathway is narrow: the consolidation loan must be disbursed by June 30, 2026.¹

New Parent PLUS borrowers taking loans on or after July 1, 2026, lose access to income-driven plans entirely. They are restricted to the tiered standard plan and no longer qualify for forgiveness after a set repayment period or for Public Service Loan Forgiveness.⁷

What Happened to SAVE

The Saving on a Valuable Education plan, created by the Biden administration in 2023, offered the most generous income-driven terms in federal history and never fully took effect. Republican-led states, initially led by Missouri Attorney General Andrew Bailey and joined by Arkansas, Florida, Georgia, North Dakota, Ohio, and Oklahoma, sued to block it in April 2024. A federal district court in the Eastern District of Missouri blocked portions of the plan in July 2024, and the Eighth Circuit enjoined it entirely in February 2025.¹⁶

While the litigation ran, roughly 7.7 million enrolled borrowers were placed in administrative forbearance. Interest began accruing again on August 1, 2025.¹⁷ On December 9, 2025, the Trump administration reached a settlement with Missouri that formally ended the plan. The Department of Education stopped enrolling new borrowers, denied roughly 450,000 pending applications, and committed to moving existing SAVE borrowers into other repayment plans, along with rulemaking to remove SAVE from federal regulations.¹⁸

Public Service Loan Forgiveness

PSLF is largely intact. Borrowers in qualifying public service can still have their remaining balance forgiven tax-free after 120 qualifying payments. Payments under RAP count toward PSLF, and so do payments on the standard plan if its term is 15 years or longer.¹³

An earlier version of the bill would have excluded time in medical and dental residency from PSLF. The Senate parliamentarian blocked that provision under the Byrd Rule, and it did not make the final law. Residents continue to earn PSLF credit during training.¹⁹²⁰

One indirect risk: because Grad PLUS is gone and the new caps are lower, some graduate and professional students may turn to private loans to fill the gap. Private loans do not qualify for PSLF.²¹

Accountability for Colleges

The law establishes an “earnings premium” test that ties a program’s federal loan eligibility to its graduates’ wages. The Department of Education is developing rules, with the first calculations expected by July 1, 2027, and the earliest program-level eligibility losses by July 1, 2028.²²

The metric compares a program’s graduates’ median earnings four years after completion to a threshold. For undergraduate programs, that threshold is the median earnings of working high-school graduates aged 25 to 34 in the institution’s state. For graduate programs, it is the median earnings of working bachelor’s degree holders, measured at the state and program level using Classification of Instructional Programs codes.²²

A program that falls below its threshold in two of three consecutive years is classified as a “low-earning outcome program” and loses eligibility for Direct Loans for at least two years. There is also an institution-level trigger: if at least half of a school’s Title IV recipients or funding comes from low-earning programs, the school risks losing all federal aid eligibility.²³

Other Changes to Know

For new loans disbursed on or after July 1, 2027, forbearance is limited to nine months in any two-year period, and the economic hardship and unemployment deferments are eliminated.¹³
Borrower Defense to Repayment rolls back. The 2022 Biden-era regulations are delayed and the rules that were in effect on July 1, 2020, apply to loans originated before July 1, 2035.¹⁰
The employer student loan repayment benefit under Section 127 is permanent, with the $5,250 annual limit indexed for inflation starting in 2027.⁸
The Secretary of Education’s authority to issue “economically significant” regulations, meaning those with an annual economic impact of $100 million or more, is limited.²⁴

Where Borrowers Stand Right Now

The stretch between the SAVE freeze and the rollout of new options has been difficult. As of December 31, 2025, about 7.7 million federal loan recipients were in default, an increase of roughly 2.5 million since September 2025, holding about $180 billion in outstanding debt. More than 6.5 million borrowers remained in SAVE-related forbearance, and over 23% of those in active repayment were more than 30 days delinquent.²⁵

The Department of Education has acknowledged a backlog of roughly 1.6 million income-driven repayment applications.²⁶ Among borrowers behind on student loan payments, 13% were also delinquent on credit cards and 8% on auto or retail loans in 2025, both figures roughly double their 2019 levels.²⁷

Advocacy groups have flagged a specific concern about RAP for lower-income borrowers: because payments are a percentage of total AGI rather than income above the poverty line, some borrowers earning under $30,000 could pay more each month than they would have under earlier plans, and the 30-year forgiveness timeline plus the tax bill on any forgiven balance means the debt can follow them longer.¹² Supporters point to the interest waiver and the $50 principal match as fixes for the long-running problem of balances that grow while borrowers pay, and to the accountability rules as pressure on colleges to lower prices.

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