New federal regulations will limit options for borrowers and push more students toward private loans
Category: Education
As the summer approaches, a seismic shift in the federal student loan system is set to impact millions of borrowers. Starting July 1, 2026, new regulations will overhaul how students repay their loans, particularly affecting graduate students who are already grappling with rising tuition costs and limited financial resources. The changes, enacted under President Donald Trump's One Big Beautiful Bill Act (OBBBA), aim to simplify repayment options but may inadvertently push many students into the more expensive private loan market.
The core of the new regulations centers around income-driven repayment (IDR) plans, a system that allows borrowers to make payments based on their income and family size. For over three decades, these plans have offered a lifeline, enabling borrowers to qualify for forgiveness after 20 to 25 years of payments. Yet, the latest updates from the Education Department, finalized on May 1, 2026, will impose stricter borrowing limits and alter how borrowers can switch between repayment plans.
The Education Department's recent changes come on the heels of legislation passed by congressional Republicans and President Trump in 2025. Secretary of Education Linda McMahon testified at a Senate committee hearing on April 28, 2026, asserting that the new regulations would create a more efficient and fair student loan repayment system. "The Trump Administration is focused on putting students and taxpayers first," she stated, emphasizing the need for durable policies to make higher education more affordable.
Under the OBBBA, the Grad PLUS loan program, which allowed graduate students to borrow up to the full cost of attendance, will be eliminated. Starting July 1, graduate students will only be able to borrow $20,500 per year for most degrees, and up to $50,000 per year for professional degrees. This change significantly caps federal borrowing, limiting total federal loans for standard graduate degrees to $100,000 and for professional degrees to $257,000.
Experts are raising alarms about the potential fallout from these changes. Mark Kantrowitz, a higher education expert, estimates that private student loan volume may double due to the new federal loan caps. He noted, "We cannot assume the private market will step in to fill federal loan gaps," highlighting concerns that many students may face rejections from private lenders based on credit scores or income.
Consumer advocates warn that the new rules could create barriers for students seeking to enter fields that require advanced degrees. Carolina Rodriguez, director of the Education Debt Consumer Assistance Program, pointed out that private loans are often credit-based, making it difficult for young graduates without strong credit histories to secure funding. "That reality will directly impact who can afford to enter these professions," she said.
One of the most notable alterations involves the introduction of the Repayment Assistance Plan (RAP), which will replace several existing IDR plans. Under RAP, borrowers will be required to make payments for 30 years before qualifying for forgiveness, compared to the 20 or 25 years offered under the current Income-Based Repayment (IBR) plans. This extended timeline raises questions about the long-term financial burden on borrowers.
Critically, the Education Department has made an unannounced change that will limit how borrowers can switch between repayment plans. Historically, payments made under one IDR plan would count toward forgiveness under another plan. Now, payments made under RAP will not carry over if a borrower decides to switch back to IBR. This means borrowers who initially choose RAP may find themselves at a disadvantage if they later want to revert to IBR's more favorable terms.
As the July deadline approaches, many borrowers are feeling the pressure to make quick decisions about their repayment options. The Education Department has begun notifying borrowers about the impending changes, urging them to select a different IDR option within a 90-day window. Failure to do so will result in automatic enrollment in a Standard repayment plan, which does not qualify for student loan forgiveness and could lead to unaffordable payments.
Abby Shafroth, managing director of advocacy at the National Consumer Law Center, expressed concern over the potential repercussions of these changes. "These dramatic changes to repayment options mean that many student loan borrowers will face huge increases in their monthly payments," she warned. Low-income borrowers, in particularly vulnerable positions, may struggle to keep up with new payment demands, swelling the ranks of those already behind or in default on their loans.
In addition to the immediate impacts on current borrowers, the changes to the federal loan system will likely have long-lasting effects on future generations of students. As more graduate students turn to private loans, they may encounter interest rates as high as 23%, compared to federal loan rates ranging from 6.39% to 8.94%. These high-interest loans can lead to significantly higher total repayment amounts, making financial stability harder to achieve.
With the elimination of Grad PLUS loans, many students may find themselves in a precarious financial position, forced to rely on private loans that come with stringent credit requirements and fewer consumer protections. Unlike federal loans, private lenders rarely offer forgiveness options, and debts can be passed to co-signers or estates in the event of a borrower's death.
As these changes take effect, students and advocates alike are urging borrowers to carefully weigh their options. The new regulations may offer some benefits, such as lower payments under RAP for certain borrowers, but the trade-offs could be substantial. The longer a borrower remains in RAP, the more costly their choice could become if they later decide they would have been financially wiser under a different plan.
As the clock ticks down to July 1, 2026, students must navigate this complex new terrain with caution and foresight. With the stakes higher than ever, the upcoming changes to the student loan repayment system will undoubtedly shape the financial futures of countless borrowers.