If you have federal student loans — or plan to take them out — the rules just changed. Since July 1, borrowers have had fewer repayment choices, higher interest rates and stricter credit limits.
Here’s what you need to know and what you should do about it:
No saving SAVE
If you enrolled in the SAVE repayment plan, you can expect to hear from your provider later in July as this Biden-era plan is being phased out. If you do nothing, your loans will default to the 10-year fixed repayment plan, which will likely cost more per month than other options available.
In addition to the fixed payment plan, there are two other options:
Income Based Repayment (IBR)
Pay 10 percent of your discretionary income for 20 years, after which the remaining amount will be forgiven. This is the route many borrowers have taken, but there is a caveat: If you take out new federal loans after July 1, you will lose access to the IBR for old loans, too.
Repayment Assistance Plan (RAP)
This is a new income-based option available from July 1st. Payments range from 1% to 10% of adjusted gross income, with forgiveness after 30 years. RAP waives interest if your payment doesn’t cover it, meaning your balance won’t increase.
A few warnings: RAP is not indexed to inflation. So if your income merely keeps pace with inflation, payments could increase. There’s also what’s called a “cliff,” which means that if you earn just $1 more, you can suddenly move up to a higher payment tier.
Additionally, in the past you have been able to switch between plans and receive credit for amounts you have already paid. That is no longer the case. So be careful which plan you choose.
July 1 was also the date when new student loan interest rates took effect, which will remain in effect from July 1, 2026 to June 30, 2027. The interest rates are fixed for the life of the loan and do not affect existing loans.
— Student loans: 6.52% (from 6.39%)
— Graduate/professional loans: 8.07% (from 7.94%)
— PLUS loans (parents + some graduate students): 9.07% (out of 8.94%)
Additionally, there are new annual and aggregate borrowing limits for federal student loans.
Caps for bachelor’s programs: unchanged at $5,500 in the first year, $6,500 in the second year and $7,500 in the third year and beyond, for a total of $31,000 over the course of a bachelor’s degree.
Graduate students: Graduate PLUS loans waived for new borrowers; Most graduate programs are now capped at $20,500 per year and $100,000 total. Medical, dental, law and veterinary students can borrow up to $50,000 per year and $200,000 total.
Parents: PLUS loans are now limited to $20,000 per year per child and $65,000 total (previously, parents’ borrowing was unlimited, up to the cost of participating in the program).
What to do now
Enter your numbers in the Federal Student Aid loan simulator or use a free calculator from TISLA, the Institute of Student Loan Advisors. There are many crucial aspects to your decision, so be careful and think carefully. For example, if you consolidate your loans after July 1, you will no longer have access to IBR and your existing forgiveness repayment credits will expire.
Guardrails
Deciding to borrow money to go to college can be a wise decision, but it requires that you don’t borrow so much that it creates a financial burden.
Students should borrow less than they expect to earn in their first year of work. Parents who want to help bear the burden should not forego their financial planning for the sake of their children. Borrowing for all children should be less than their total annual income, including co-signed loans.
Jill Schlesinger, CFP, is a business analyst at CBS News. As a former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check out their website at www.jillonmoney.com.
https://www.mercurynews.com/2026/07/06/jill-on-money-changes-to-federal-student-loans/
