Student Loan Changes on July 1, 2026: What Borrowers Need to Do

Updated on March 22, 2026

Multiple federal student loan programs change on July 1, 2026. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, replaces most income-driven repayment plans, eliminates Grad PLUS loans, caps graduate and Parent PLUS borrowing, and launches the new Repayment Assistance Plan (RAP). A separate Department of Education rule narrowing PSLF employer eligibility also takes effect on the same date.

This page covers every change, who it affects, and what to do before the deadline.

RAP Launches — Legacy Repayment Plans Begin Phasing Out

On July 1, 2026, the Repayment Assistance Plan becomes available to all federal Direct Loan borrowers except those with Parent PLUS loans. RAP calculates payments as a percentage of your adjusted gross income (ranging from 1% to 10%) and offers forgiveness after 30 years.

If your loans were first disbursed on or after July 1, 2026, RAP and the new Standard Repayment Plan are your only options. You cannot enroll in Income-Based Repayment (IBR), Pay As You Earn (PAYE), Income-Contingent Repayment (ICR), or SAVE.

If your loans predate July 1, 2026, you can stay on your current plan, switch to IBR, or opt into RAP voluntarily. But PAYE, ICR, and SAVE stop accepting new enrollees on July 1, 2026, and all three sunset by July 1, 2028. After that, borrowers who haven’t switched will be automatically moved to RAP (if eligible) or IBR. If you don’t choose a plan by then, you default to the Standard Repayment Plan — higher monthly payments and no path to forgiveness.

IBR is the only legacy income-driven plan that survives — it remains available indefinitely for borrowers with loans disbursed before July 1, 2026.

Deciding Between IBR and RAP

The choice between IBR and RAP depends on where you are in repayment. IBR calculates payments at 10% or 15% of discretionary income (depending on when you borrowed) and offers forgiveness after 20 or 25 years. RAP uses a different formula — a sliding percentage of your full AGI — and offers forgiveness after 30 years, with interest subsidies and principal reductions.

If you’re close to forgiveness on your current plan, switching to RAP may extend your timeline. If you’re early in repayment with a high balance, RAP’s interest subsidies may reduce what you owe over time.

Switching From SAVE, PAYE, or ICR

If you’re currently on SAVE, PAYE, or ICR, you don’t need to act immediately — but you need a plan before July 1, 2028. Your options: switch to IBR now, wait for RAP, or do nothing and accept the automatic transition.

Switching plans does not reset your progress toward PSLF or IDR forgiveness in most cases. Your qualifying payment count carries over.

Parent PLUS Loans — Consolidation Deadline Is June 30, 2026

Parent PLUS borrowers who have not consolidated into a Direct Consolidation Loan by June 30, 2026, permanently lose access to every income-driven repayment plan — ICR, IBR, and RAP. That also means no path to forgiveness through IDR or PSLF.

This is a disbursement deadline, not an application deadline — your consolidation loan must be disbursed by June 30. The Department of Education recommends applying no later than April 1, 2026.

If you’ve already consolidated and are enrolled in ICR or IBR, your current plan remains in effect. But there’s a trap: if you take out a new Parent PLUS loan after July 1, 2026, all of your existing Parent PLUS consolidation loans lose IDR eligibility — even the ones already enrolled in an income-driven plan. New borrowing after the deadline contaminates the entire portfolio.

New Parent PLUS loans issued after July 1, 2026, are also subject to new borrowing caps: $20,000 per year per dependent student and $65,000 lifetime per student. These replace the previous cost-of-attendance model, which had no fixed cap.

How Consolidation Preserves Your Options

Consolidation converts your Parent PLUS loans into a Direct Consolidation Loan, which is eligible for ICR and — under current rules — IBR. From there, you can pursue PSLF (if you work for a qualifying employer) or IDR forgiveness after 20–25 years.

You consolidate through StudentAid.gov. When you apply, you select a repayment plan. To enroll in ICR or IBR immediately, complete the IDR application at the same time.

Graduate and Professional Borrowing — Grad PLUS Ends, New Limits Begin

The OBBBA eliminates the Graduate PLUS loan program for new borrowers after July 1, 2026. If you currently hold Grad PLUS loans, nothing changes for your existing debt — the elimination applies only to new disbursements.

For students enrolling in graduate or professional programs after July 1, 2026, federal borrowing operates under fixed annual and aggregate caps:

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

These limits replace the previous system, where Grad PLUS loans covered up to the school’s full cost of attendance with only a minimal credit check. The new structure caps federal exposure but may push some students toward private loans — which carry higher rates and no access to federal forgiveness or income-driven repayment.

Undergraduate borrowing limits are unchanged.

PSLF — New Employer Eligibility Restrictions

A separate rule — not part of the OBBBA — also takes effect on July 1, 2026. The Department of Education published a final rule on October 30, 2025, amending 34 C.F.R. § 685.219 to narrow the list of employers that qualify for Public Service Loan Forgiveness.

Under the new rule, no payment counts as a qualifying PSLF payment for any month where your employer engaged in activity constituting a “substantial illegal purpose.” The rule lists specific disqualifying activities, including aiding federal immigration law violations.

The rule applies prospectively — it does not affect payments already credited before July 1, 2026. But any qualifying payment made on or after that date is subject to the new employer test.

Three federal lawsuits challenge the rule. If a court issues an injunction before July 1, the effective date could be delayed. As of March 2026, no injunction has been issued.

Deferment and Forbearance Restrictions (July 2027)

A separate set of OBBBA provisions takes effect one year later, on July 1, 2027. These do not affect existing borrowers — only new borrowers after that date.

Starting July 1, 2027, new borrowers will no longer qualify for economic hardship or unemployment deferments. Forbearance will be capped at 9 months within any rolling 24-month period.

These are real changes, but they apply to a different group (future borrowers) on a different timeline (one year later).

What You Should Do Before July 1, 2026

Here’s what applies based on your situation:

If You Have Parent PLUS Loans

Apply for consolidation through StudentAid.gov now — processing takes weeks. Miss this window, and income-driven repayment and forgiveness disappear permanently for unconsolidated Parent PLUS loans.

If You’re on SAVE, PAYE, or ICR

You don’t need to act before July 1, 2026, but you do need a plan before July 1, 2028, when PAYE, ICR, and SAVE sunset entirely. Your two long-term options are IBR and RAP. Once RAP is available in July 2026, you can compare both plans against your specific income and balance before deciding.

If You’re on Track for PSLF

Certify your employment and confirm your qualifying payment count before July 1. Payments credited under the current employer eligibility rules are not affected by the new “substantial illegal purpose” standard.

If You’re a Current or Prospective Graduate Student

Grad PLUS loans are no longer available to new borrowers after July 1, 2026. If you’re currently borrowing Grad PLUS loans, your existing loans are unaffected. If you’re entering a graduate or professional program after July 1, 2026, you’ll borrow under the new annual and aggregate limits. Evaluate whether the new federal caps cover your program’s costs or whether you’ll need to supplement with private loans.

For All Borrowers

Log in to StudentAid.gov and confirm your loan details, servicer, and repayment plan. Changes of this scale create processing backlogs — verifying your records now reduces the risk of errors later.

FAQs

Does July 1, 2026 affect my existing student loans?

It depends on the loan type. If you have Parent PLUS loans that aren’t consolidated, you lose IDR access permanently after June 30, 2026. If you have other federal loans and you’re on SAVE, PAYE, or ICR, your plan continues until July 1, 2028 — but you can’t enroll in a new legacy plan after July 1, 2026. Existing IBR borrowers are unaffected.

Is RAP better than IBR?

Neither plan is universally better. RAP offers interest subsidies and principal reductions that IBR does not, but it extends the forgiveness timeline to 30 years. IBR offers forgiveness after 20 or 25 years, but allows more interest to capitalize. The right choice depends on your income, balance, and how far along you are in repayment.

What happens if I miss the Parent PLUS consolidation deadline?

Your Parent PLUS loans remain in repayment on the Standard or Graduated plan. You permanently lose eligibility for ICR, IBR, RAP, and all other income-driven plans. You also lose any path to loan forgiveness through IDR or PSLF.

Can I still get PSLF after July 1, 2026?

Yes. PSLF remains available to borrowers in qualifying employment on qualifying repayment plans (IBR and RAP both qualify). The change is to employer eligibility — the new rule could disqualify certain employers.

Are undergraduate loans affected by the July 2026 changes?

Undergraduate borrowing limits are unchanged. The repayment plan changes (RAP launch, legacy plan phase-out) apply to all federal Direct Loan borrowers regardless of degree level. If you’re an undergraduate-only borrower on IBR, you can stay on IBR indefinitely.

What is the One Big Beautiful Bill Act?

The OBBBA (Public Law 119-21) is the federal legislation signed on July 4, 2025, that restructures student loan repayment, eliminates Grad PLUS loans, caps graduate and Parent PLUS borrowing, creates the Repayment Assistance Plan, and phases out SAVE, PAYE, and ICR. Most of its student loan provisions take effect July 1, 2026.