For many federal student loan borrowers, changes are coming that could significantly impact repayment options, monthly payments, and long-term forgiveness opportunities.
Over the past several months, we have shared updates about planned changes to the federal student loan system. Some borrowers may have assumed there was still plenty of time before these changes took effect.
That window is closing.
July 1 marks a major transition point for federal student loan borrowers. For some individuals, important decisions may need to be made now to preserve repayment options that will no longer be available after the deadline.
Related Reading: How to Build Student Loans Into Your Budget
Why July 1 Matters
Beginning July 1, the repayment options available to certain federal student loan borrowers will become much more limited.
For new federal student loans issued beginning with the 2026-2027 academic year, borrowers will no longer have access to many of the existing income-driven repayment (IDR) plans. Instead, borrowers will generally have two new repayment choices:
- The new Standard Tiered Repayment Plan
- The new Repayment Assistance Plan (RAP)
These changes are especially important for two groups of borrowers:
1. Parent PLUS Loan Borrowers Who May Benefit From Income-Driven Repayment
Parents with Parent PLUS loans should pay close attention because a strategy that has historically allowed some borrowers to access income-driven repayment options will no longer be available after July 1.
Historically, Parent PLUS loans have not been directly eligible for income-driven repayment plans. However, a workaround has existed:
A parent borrower could consolidate Parent PLUS loans into a federal Direct Consolidation Loan and then become eligible for the Income-Contingent Repayment (ICR) plan.
For some borrowers, this strategy provided meaningful benefits, including:
- Monthly payments based on income rather than a standard repayment schedule
- Potential access to Public Service Loan Forgiveness (PSLF) for eligible borrowers
- The possibility of loan forgiveness after meeting program requirements
To preserve this option, borrowers who may benefit from this strategy generally need their Direct Consolidation Loan fully disbursed before July 1.
Federal consolidation loans can take weeks or months to process, so borrowers considering this option should not wait until the last minute.
After July 1, newly consolidated Parent PLUS loans will no longer be eligible for income-driven repayment plans.
2. Borrowers Currently on Income-Driven Plans Who Plan to Borrow Again
Another group that needs to understand the changes is borrowers who are already enrolled in an income-driven repayment plan but expect to take out additional federal student loans.
A common example: A student repaying undergraduate loans under an existing income-driven plan later returns to school and borrows additional federal loans for graduate or professional school.
Beginning July 1, taking out new federal student loans could cause borrowers to lose access to the repayment protections associated with their existing loans.
For borrowers who want to preserve their current repayment terms, alternatives may include:
- Scholarships
- Graduate assistantships
- Employer tuition reimbursement programs
- Private student loans
Once a borrower signs a new federal Master Promissory Note for additional federal borrowing, their previous repayment protections may be impacted.
Related Reading: Financial Planning Checklist: Am I Eligible For An IDR Plan?
What Happens to Borrowers Already on Income-Driven Repayment Plans?
Borrowers currently enrolled in certain legacy income-driven repayment plans may remain in those plans for now, as long as they do not take out additional federal loans.
These plans include:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Income-Contingent Repayment (ICR)
However, additional changes are coming.
By July 1, 2028, the PAYE and ICR plans are expected to phase out, leaving IBR and the new Repayment Assistance Plan as the remaining income-driven options.
The new Repayment Assistance Plan (RAP) replaces the SAVE plan, which was introduced during the Biden administration and later became the subject of legal challenges.
New Repayment Options Beginning July 1
For new federal borrowers, repayment options will shift toward two primary choices.
1. Standard Tiered Repayment Plan
The new Standard Tiered Repayment Plan replaces several previous repayment structures with a simpler system based on total outstanding loan balance.
Instead of every borrower following the same 10-year repayment schedule, the repayment period will depend on the amount owed.
| Total Loan Balance | Repayment Term |
| Less than $25,000 | 10 years |
| $25,000 to less than $50,000 | 15 years |
| $50,000 to less than $100,000 | 20 years |
| $100,000 or more | 25 years |
The goal is to provide borrowers with higher balances more time to repay their loans while reducing monthly payment pressure.
2. Repayment Assistance Plan (RAP)
The new Repayment Assistance Plan calculates payments differently from many previous income-driven repayment plans.
Instead of using discretionary income calculations tied to the Federal Poverty Level, RAP bases payments on a percentage of a borrower’s adjusted gross income (AGI).
The payment structure begins as follows:
- AGI of $10,000 or less: $10 per month
- AGI of $10,001–$20,000: 1% of AGI
- AGI of $20,001–$30,000: 2% of AGI
The percentage increases by one percentage point for each additional $10,000 income bracket, reaching a maximum of 10% for borrowers with AGI above $100,000.
Borrowers may also receive a $50 monthly reduction for each qualifying dependent.
RAP includes some protections designed to prevent loan balances from growing:
- If the monthly payment does not cover accruing interest, the government covers the unpaid interest so the balance does not increase.
- If the payment does not reduce principal by at least $50, the Department of Education provides a subsidy to help ensure the balance decreases.
The remaining balance may be forgiven after 30 years of qualifying payments. RAP also remains eligible for Public Service Loan Forgiveness.
A Reminder: Student Loan Rules Continue to Change
Student loan repayment policies have evolved repeatedly over the years. Since the first income-driven repayment option was introduced during the Clinton administration in 1994, borrowers have seen multiple changes to eligibility rules, payment formulas, and forgiveness programs.
The July 1 changes are significant, but they are unlikely to be the final changes borrowers see.
For anyone with federal student loans, the best approach is to understand how these changes may affect your personal situation and make decisions based on your long-term financial goals.
Student loans are not just a monthly payment issue — they can affect retirement planning, cash flow, taxes, and overall financial strategy.
Bautis Financial LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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