Overhaul underway for student loan repayment rules

What This is

• The federal student loan system is being reshaped through new repayment options, tighter forgiveness rules, and changes to how much some borrowers can borrow and at what interest rates.
• The Biden-era SAVE income-driven repayment plan is being dismantled, affecting about seven million enrollees who will need to choose a different federal repayment plan or have one assigned.
• Borrowers will begin receiving official notices with deadlines starting July 1 about required repayment-plan changes after a prolonged period of uncertainty tied to legal challenges.
• A recent tax and policy law creates new repayment programs and phases out some existing income-based repayment plans, which could increase monthly bills for some borrowers.
• New borrowing limits are set to restrict Parent PLUS loans with annual and lifetime caps and eliminate Graduate PLUS loans, shifting how families and graduate students can finance education.
• The Education Department reclassified several professional health degrees as general graduate programs, capping federal loans at $20,500 per year and $100,000 total for those programs.
• Physician associate groups and some state officials warn the new professional-degree loan caps could reduce the pipeline of health-care providers, especially for rural communities.
• A finalized rule narrows Public Service Loan Forgiveness by allowing the Education Department to exclude employers it considers engaged in illegal activity, with the change set to take effect July 1.
• Interest rates for new federal student loans disbursed from July 1, 2026 to June 30, 2027 will rise to 6.52% for undergraduates, 8.07% for graduate Direct loans, and 9.07% for PLUS loans, while existing fixed rates stay the same.

Why This Matters

• Repayment-plan churn can raise the risk of missed payments and default when borrowers must quickly choose among complex options.
• Higher monthly payments can reduce household spending, delay homeownership or family formation, and increase financial stress for younger workers.
• Tighter loan limits and costlier new borrowing can reshape who can afford graduate and professional training, affecting workforce supply in fields like health care.
• Changes to loan forgiveness eligibility test how much discretion the executive branch should have over major financial relief programs.
• Frequent rule changes can undermine trust in federal promises and make long-term financial planning harder for borrowers and schools.