Millions of student loan borrowers will see significant changes to the federal loan system beginning July 1.
The overhaul is expected to raise monthly payments for some Americans, with lower-income borrowers likely to be among those most affected. Other borrowers will encounter new restrictions on how much they can borrow.
About 43 million people in the United States currently carry student loan debt, amounting to nearly $1.7 trillion, according to the Office of Federal Student Aid, which operates under the Department of Education.
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Education Secretary Linda McMahon, who has been tasked with carrying out the administration’s push to wind down the department, has said the Trump administration will not continue allowing taxpayers to shoulder debts incurred by others.
The sweeping changes are tied to provisions in President Donald Trump’s signature tax law — the Working Families Tax Cuts Act — which passed last year, as well as executive orders aimed at reshaping the Department of Education.
Here is what borrowers should know:
Fewer repayment options
Officials at the Department of Education and outside education analysts have described the Trump administration’s student loan overhaul as one of the most substantial changes to the federal loan portfolio in decades.
One of the biggest changes is the end of a Biden-era repayment program called Saving on a Valuable Education or “SAVE.” There are currently about 7 million borrowers enrolled in that program, and now they will have 90 days to switch to a new plan to pay back their student debt.
There will only be two repayment plans that new student loan borrowers can choose: the Repayment Assistance Plan (RAP) or the Tiered Standard repayment plan. The Education Department says that by phasing out other plans, it will make the process smoother and simpler for borrowers to make their payments on time.
But student loan advocates warn monthly payments under the RAP plan will be higher for borrowers. The Institute for College Access & Success (TICAS) found that the median U.S. household could see student loan defaults spike and premiums increase by hundreds of dollars a month.
New borrowing limits
Another big change is a cap on how much money graduate students can borrow. Before this change, students could borrow up to the cost of their tuition and fees.
As of July 1, graduate students pursuing Master’s degrees will only be able to take out federal loans up to $20,500 per year or $100,000 in total.
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Professional students, which includes law school or medical school, will be able to borrow up to $50,000 per year or $200,000 total.
There are also new limits on Parent PLUS loans, which is now a $65,000 lifetime limit on loans to parents for their children to attend college. In all, most graduate borrowers will not be allowed to take out loans exceeding $257,500.
Education experts who spoke to ABC News emphasize that the Trump administration’s limits could significantly curtail graduate student borrowing or force some borrowers to forgo graduate education altogether.
Clare McCann, the policy director at the Postsecondary Education & Economics Research (PEER) Center, told ABC News that it’s conceivable that some graduate borrowers won’t achieve their desired degrees.
“This may end up being a bit of an overcorrection,” McCann said. “We could see implications for student access.”
Meanwhile, the Education Department argued that these new caps will “curb excessive borrowing and force institutions to evaluate their costs.” Department of Education Under Secretary Nicholas Kent told ABC News that the caps will ensure higher education is more affordable for millions of Americans.
“Affordability is the name of the game right now,” Kent said. “These loan caps will put downward pressure on institutions to lower their costs. We’ve got to get the cost of higher education down in this country. We’ve got to make the system less cumbersome, less complex, [and] easy to understand.”
Former President Joe Biden attempted a signature student loan forgiveness plan to relieve portions of student loan debt for over 40 million American borrowers but it was struck down by the Supreme Court in 2023.
In a 6-3 decision, the court ruled that Biden’s Department of Education exceeded its authority under the HEROES Act, which is a 2003 law that states the government can provide relief to recipients of student loans when there is a “national emergency.”
What borrowers should do now
The Education Department has created a “repayment calculator” on its website where students can calculate their monthly bills and compare plans.
Borrowers can apply for one of the two new repayment plans on StudentAid.gov. The Education Department claims the application will take 10 minutes to complete.
Kent, the education department under secretary, urged students to get back into active repayment because broad student loan forgiveness that was once promised to borrowers isn’t going to happen.
“[Borrowers] have a responsibility as somebody who took out a loan to repay it,” Kent said. “It’s not your neighbor’s job to repay your loan, it’s your job to repay your loan, but there are tools available to help you to make sure that you have a manageable payment.”
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