Big Beautiful Bill Student Loan Changes: What the Law Does

Updated on March 23, 2026

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, restructures federal student loan borrowing, repayment, and forgiveness, effective July 1, 2026.

For the full timeline of what changes on that date and what to do before it, see the complete July 2026 borrower guide.

Repayment Plans the Law Eliminates and Creates

The OBBBA eliminates three income-driven repayment plans and creates one new one. SAVE, Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) stop accepting new enrollments on July 1, 2026. All three sunset entirely by July 1, 2028. If you’re enrolled in one of those plans when they close, you’ll likely be automatically moved to RAP (if eligible) or IBR.

RAP becomes available on July 1, 2026. If your loans were first disbursed on or after that date, RAP and the new Standard Repayment Plan are your only options. If your loans predate July 1, 2026, you can stay on your current plan, switch to IBR, or opt into RAP voluntarily.

IBR is the only legacy income-driven plan that survives indefinitely. The OBBBA also removed the partial financial hardship requirement for IBR enrollment, opening the plan to borrowers who were previously locked out due to income.

If you don’t actively choose a plan by July 1, 2028, you default to the Standard Repayment Plan — higher monthly payments and no path to forgiveness.

Related:

Graduate and Parent PLUS Borrowing Limits

The OBBBA eliminates the Graduate PLUS loan program for new borrowers after July 1, 2026, and replaces cost-of-attendance borrowing with fixed caps.

New annual and aggregate limits for loans disbursed on or after July 1, 2026:

Graduate programs: $20,500 per year, $100,000 aggregate for the degree
Professional programs (M.D., J.D., D.D.S.): $50,000 per year, $200,000 aggregate for the degree
Parent PLUS loans: $20,000 per year per dependent student, $65,000 lifetime per student
Combined lifetime cap: $257,500 across all federal student loans (excluding Parent PLUS)

Under the old system, Grad PLUS loans covered up to a school’s full cost of attendance with only a minimal credit check and no fixed cap. Parent PLUS loans also had no annual or lifetime limit.

Existing Grad PLUS loans are unaffected. If you already hold Grad PLUS debt, the elimination applies only to new disbursements — your current loans keep their original terms.

Undergraduate borrowing limits are unchanged.

How the Law Affects Loan Forgiveness

The OBBBA changes forgiveness timelines and the tax treatment of forgiven balances, but it does not eliminate forgiveness.

RAP offers forgiveness after 30 years (360 qualifying payments). IBR offers forgiveness after 20 or 25 years, depending on when you first borrowed. RAP’s timeline is 5–10 years longer than IBR’s.

The American Rescue Plan Act temporarily excluded forgiven student loan balances from federal income tax through December 31, 2025. That exclusion has expired. IDR forgiveness discharged in 2026 or later is taxable at the federal level unless you qualify for an exception — most commonly the insolvency exclusion under IRS Form 982.

Public Service Loan Forgiveness (PSLF) was not changed by the OBBBA. The 120-payment, 10-year structure remains intact under the statute. However, a separate Department of Education rule — not part of the OBBBA — narrows the list of employers that qualify for PSLF starting July 1, 2026. That rule introduces a “substantial illegal purpose” standard and is being challenged in three federal lawsuits.

Deferment and Forbearance Restrictions

Starting July 1, 2027, new federal student loan borrowers lose access to economic hardship and unemployment deferments. General forbearance is capped at 9 months within any rolling 24-month period.

These restrictions apply only to loans first disbursed on or after July 1, 2027. If your loans predate that date, your current deferment and forbearance options remain unchanged.

The one-year delay means this provision takes effect separately from the July 1, 2026, changes to repayment plans and borrowing limits.

FAQs

What does the Big Beautiful Bill do to student loans?

The OBBBA eliminates SAVE, PAYE, and ICR; creates RAP as the new income-driven plan; ends Grad PLUS loans for new borrowers; caps graduate, professional, and Parent PLUS borrowing; and restricts deferment and forbearance for future borrowers. Most provisions take effect July 1, 2026.

Does the law affect existing borrowers?

Existing borrowers with loans disbursed before July 1, 2026 can stay on their current repayment plan until July 1, 2028. After that, PAYE, ICR, and SAVE close permanently. IBR remains available indefinitely. RAP is available as a voluntary option starting July 1, 2026.

What is the One Big Beautiful Bill Act?

The OBBBA (Public Law 119-21) is a federal budget reconciliation law signed on July 4, 2025. Its student loan provisions restructure repayment, borrowing limits, and deferment rules. The formal title is the One Big, Beautiful Bill Act.

Are student loans being forgiven under the new law?

The OBBBA does not create a new forgiveness program or cancel existing debt. It preserves IDR forgiveness (after 20–30 years, depending on the plan) and leaves PSLF intact. Forgiveness discharged after December 31, 2025, is taxable at the federal level.

Did the law change student loan bankruptcy discharge?

No. The OBBBA did not modify federal student loan discharge in bankruptcy. The undue hardship standard under 11 U.S.C. § 523(a)(8) remains the governing framework for discharging student loans through an adversary proceeding.