Under a new federal law passed in summer 2025, the rules for borrowing and repaying student loans are getting a major overhaul. The One Big Beautiful Bill Act, known as OBBBA, takes effect July 1, 2026, and will reshape how Americans finance their college education. The Trump administration aims to simplify the complicated world of student loans while reducing what the government spends on subsidies.
The One Big Beautiful Bill Act takes effect July 1, 2026, overhauling federal student loan borrowing and repayment rules nationwide.
For anyone taking out federal loans after July 1, 2026, choices narrow notably. New borrowers can only select between two options: a tiered standard plan with fixed payments over 10 to 25 years depending on loan size, or the Repayment Assistance Plan called RAP. This new RAP plan differs from older income-driven programs. Central banks often influence markets that affect borrowers’ broader financial conditions, including interest-rate driven loan costs, which investors watch closely for market signals.
It bases payments on total adjusted gross income rather than discretionary income, meaning even low earners must make some payment each month. The repayment period stretches to 30 years before any remaining balance gets forgiven.
Graduate students face strict borrowing caps under the reforms. Non-professional programs limit students to $20,500 yearly and $100,000 total in Direct Unsubsidized Loans. Professional programs like medicine or law allow $50,000 per year up to $200,000 lifetime. Previously, students could borrow up to the full cost of attendance, which critics say encouraged schools to raise tuition. The Congressional Budget Office estimates the caps will reduce graduate loan costs by $44 billion over 10 years.
Parent PLUS loans also get reined in. Starting July 1, 2026, parents can borrow only $20,000 annually per student with a $65,000 lifetime cap. That maximum applies no matter how many parents borrow for the same child. Parents hoping to access income-driven repayment must consolidate their loans before July 1, 2026, with applications recommended by April 1.
Current borrowers using older plans like SAVE, ICR, or PAYE must shift to new options by July 1, 2028, or they automatically enroll in RAP. The SAVE plan ended through a December 2025 settlement, giving affected borrowers limited time to switch. Borrowers who receive forgiveness under income-driven repayment plans after Jan 1, 2026 may face federal income taxes on the discharged amount, as a pandemic-era tax exclusion expired. These changes represent the biggest shift in federal student lending in decades, affecting millions of families navigating college costs.
