After already experiencing whiplash in federal student loan policies since the pandemic, borrowers must again brace for change.
The “big, beautiful bill” that President Trump signed into law on July 4 overhauls the federal student loan system by reducing the number of repayment plan options down to two and capping the amount individuals can borrow for higher education.
Here are changes to student loan repayments under the new budget law.
Repayment plan options
Known as the One Big Beautiful Bill Act, the new law phases out a number of federal student loan repayment options including the SAVE plan.
Current borrowers enrolled in programs to be eliminated, will have until July 1, 2028 to switch to a new plan. For the 7.7 million Americans currently enrolled in the Biden-era SAVE plan, interest collection will resume on Aug. 1, the Department of Education announced Wednesday.
Beginning on July 1, 2026, new student loan borrowers will choose between one of two plans: a standard repayment plan or an income-driven repayment (IDR) plan called the Repayment Assistance Plan.
The standard repayment plan will allow student loan borrowers to make fixed payments over the course of 10 to 25 years.
The Repayment Assistance Plan will allow borrowers to pay 1% to 10% of their income on a monthly basis, for up to 30 years, Aissa Canchola Bañez, the policy director at advocacy group Student Borrower Protection Center, told CBS MoneyWatch. That’s a longer timeline than current IDR plans, she said, which are currently either 20 or 25 years.
After the 30-year mark, the borrower’s remaining loan balance will be canceled, as is currently the case after an individual’s repayment window ends.
The 5-year payment extension on income-based payments concerns Bañez, who said “borrowers are going to be forced to be in repayment for even longer,” she said.
However, Sarah Reber, a senior fellow at the Brookings Institution, a Washington, D.C.-based think tank, called the binary repayment options a “huge improvement” from a policy design perspective. The current system is confusing for borrowers given all the options from which they have to choose, she told CBS MoneyWatch.
Pell Grants
The new law tightens qualifications for Pell Grant program, the largest source of federal aid for low-income students. From 2021-2022, an estimated 92% of Pell Grant recipients had a total family income at or below $60,000, according to Congress.gov.
Under the “big, beautiful bill” students who receive a full scholarship from the college or university they are attending will no longer be eligible for additional funding through the Pell Grant program.
The budget law also increases scrutiny of the Student Aid Index, which is used to determine the size of an individual’s federal aid eligibility. As a result, higher-income families will have a harder time getting Pell Grant funding, according to the U.S. Senate Committee on Health, Education, Labor and Pensions (HELP).
The law expands Pell Grant eligibility for students in workforce training programs.
Borrowing caps
The new law sets borrowing caps on certain loans beginning July 1, 2026.
Parent PLUS loans, which are federal loans available for parents of dependent undergraduate students, will now be restricted to $20,000 a year and $65,000 total cap. That’s a change from the current limit, which amounts to the total cost of attendance minus any student aid the student receives.
The new bill also does away with Grad PLUS loans, which help people finance higher education degrees. Starting July 1, 2026, new students will no longer be able to apply for the loans. However, current borrowers will be grandfathered in and still allowed to access the loans, according to EdSource.
Graduate students seeking unsubsidized federal loans for professional degrees, such as law or medicine, will be restricted to $50,000 per year and a $200,000 lifetime cap. Those seeking an advanced degrees in nonprofessional areas, such as history or philosophy, will be restricted to a yearly borrowing cap of $20,500 and a lifetime cap of $100,000.
In a statement to CBS MoneyWatch, the Association of American Medical Colleges expressed concern over these changes, saying they “will create significant financial barriers to attending medical school.” According to the not-for-profit group, around 40% of medical students have relied on Grad PLUS historically to finance their education.
Economic hardship, unemployment deferment
As of July 1, 2026, deferment provisions for borrowers facing economic hardship will be eliminated under the “big, beautiful bill.”
Currently, student loan borrowers can apply for up to 3 years of deferment based on economic hardship or unemployment, according to the Federal Student Aid website.
