Student-loan borrowers, get ready: big changes are coming.
For nearly a year, President Donald Trump's Department of Education has been preparing to implement the sweeping student-loan changes signed into law in the administration's " big beautiful" spending legislation.
After negotiation, public comment, and ongoing litigation, those changes will take effect on July 1. They include a new repayment plan, borrowing caps for advanced degrees, and the elimination of programs that allow students and parents to borrow the full cost of attendance for school.
The Department of Education said the changes are intended to simplify a complex student-loan repayment system and curb excessive borrowing. However, borrower advocates and Democratic lawmakers have raised concerns that the changes could increase borrowers' monthly bills by hundreds of dollars and lead some toward riskier, private student-loan products.
Undersecretary of Education Nicholas Kent said in an April statement that the repayment overhaul "addresses longstanding challenges in higher education and federal student lending, including exorbitant tuition costs, unchecked borrowing, and a confusing maze of repayment options that too often leave borrowers with higher balances despite making payments."
Here are the key changes coming for student-loan borrowers next month.
New repayment plans
Two new student-loan repayment plans will be rolled out on July 1: the Repayment Assistance Plan and a tiered standard repayment plan.
RAP is intended to replace existing income-driven repayment plans, but its terms are less generous. A borrower's monthly payment under RAP would scale with their adjusted gross income, ranging from 1% to 10% of AGI. That's different from income-based repayment plans, which set aside a portion of a borrower's income for basic monthly expenses and calculate the monthly payment based on the lower amount.
The forgiveness terms for RAP differ from those of existing plans. While current income-based plans allow forgiveness after 20 or 25 years of payments, RAP would discharge loans after 30 years.
The department is also rolling out a tiered standard plan on July 1. Under this plan, borrowers would repay their loans in full over a repayment period based on the amount of their principal balance, with a minimum payment of $50 a month.
For example, borrowers with a balance of less than $25,000 would have a 10-year repayment period, while those with a balance of $100,000 or more would have a 25-year repayment period.
Borrowers who take out their first student loans on or after July 1 will have access to only RAP and the tiered plan.
Transitioning off the SAVE plan
The SAVE plan was created by former President Joe Biden to give borrowers cheaper monthly payments and a shorter timeline to loan forgiveness. Now that it's been eliminated, 7 million enrolled borrowers will have to transition off the plan and begin repayment on a new plan.
The Department of Education said that, beginning on July 1, servicers will start sending notices to SAVE borrowers informing them of their deadline to transition to a new plan. Borrowers will have 90 days to make that transition, and if they do not take any action, their servicers will automatically place them on the standard or tiered repayment plan.
The most recent notice was sent to SAVE borrowers in late May. The notice, which Business Insider reviewed, said that borrowers do not need to wait until July to switch plans.
"By choosing a new repayment plan and making payments now, you'll pay off your debt more quickly than if you stay on the SAVE Plan in a forbearance that's adding to your loan balance," the notice said.
Student-loan borrowers are still hoping to reverse the ruling in court. In March, four borrowers — represented by the law firm Public Goods Practice — filed a lawsuit seeking relief for SAVE borrowers, and the litigation is ongoing.
New borrowing caps
A key debate in Trump's repayment overhaul was over new borrowing caps on advanced degrees. The Department of Education will implement a $100,000 lifetime borrowing cap for graduate students and a $200,000 lifetime cap for professional students. The department is also limiting the professional cap to 11 programs, including medicine, dentistry, and law.
The Parent PLUS program will also face new caps. While it previously allowed parents to borrow the full cost of attendance for their kids' programs, parent borrowers will face a $65,000 borrowing cap for each child beginning in July.
Advocates, borrowers, and lawmakers across the aisle are pushing the Department of Education to change its definition of a professional degree to include advanced nursing programs. While the department has said that the majority of nursing programs would fall into the lower borrowing cap, 25 Democratic-led states said in a recent lawsuit that the limits would exacerbate the ongoing healthcare worker shortage.
"Higher education is expensive, and our health care system is already under immense strain," Letitia James, New York's attorney general, said in a statement alongside the lawsuit. "This rule will shut talented people out of critical professions and leave communities with fewer health care providers they desperately need."
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