What OBBBA means for federal student loan borrowers

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A crash course in changes to student loans.

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Editor’s note: Federal student loan regulations and implementation guidance continue to evolve, and some repayment details may change as the Department of Education finalizes rules.

The One Big Beautiful Bill Act (OBBBA) overhauls federal student aid in ways that will affect how families pay for college and take on debt. The law eliminates Grad PLUS loans, sets new borrowing caps for students and parents, and replaces most income-driven repayment plans with a new Repayment Assistance Plan (RAP). It also adds accountability rules for colleges tied to graduates’ earnings. Together, these changes rewrite the rules for borrowing and repaying federal student loans starting in 2026.

One of the biggest shifts in the law is how repayment works. The OBBBA eliminates three income-driven repayment plans:

The act replaces these plans with a single income-driven repayment option known as RAP.

The SAVE plan, introduced by the Biden administration, allowed the Department of Education to stop interest from accruing on enrolled borrowers’ loans beginning in July 2024. After federal courts struck down key parts of SAVE, the agency said that interest would resume on August 1, 2025, affecting about 7.7 million borrowers still in the plan.

Starting July 1, 2026, new borrowers generally will choose between RAP and a new standard repayment plan, which sets fixed payments over 10, 15, 20, or 25 years, depending on the loan’s size.

Borrowers already enrolled in PAYE, SAVE, or ICR can remain in those plans temporarily, but the plans are scheduled to sunset by July 1, 2028. Borrowers are expected to transition to either income-based repayment (IBR) or the new RAP. The Department of Education also removed the “partial financial hardship” requirement for entering IBR, making the plan available to more borrowers. According to guidance issued after enactment of the law, PAYE and ICR no longer lead to loan forgiveness, although prior qualifying payments may still count if borrowers later switch into IBR or RAP.

Key features of RAP:

Guidance is unclear on whether time spent in RAP would count toward forgiveness if a borrower later switches into another repayment plan.

Under SAVE, some borrowers qualified for no monthly payments, and unpaid interest wasn’t added to their balances. RAP sets a $10 minimum payment and calculates payments as a share of income, which often leads to higher bills.

For example, a borrower earning $40,000 a year would have paid about $40 a month under SAVE but pays about $132 under RAP, according to Saving for College, a website devoted to higher education affordability. That means many lower-income borrowers could face higher required monthly payments under RAP than they would have under SAVE.

Borrowers pursuing Public Service Loan Forgiveness may be less affected by the longer forgiveness timeline under RAP because PSLF still cancels qualifying federal student debt after 10 years of public-service employment and payments.

The Direct PLUS loan program also gets an overhaul under the OBBBA.

PLUS loans were traditionally a way for families to borrow beyond Direct subsidized and unsubsidized loan limits, although often at higher interest rates. The rules imposed by the OBBBA may push more parents and students toward private loans, which typically offer fewer protections than federal loans.

Parent PLUS borrowers aren’t the only group affected by new limits. The OBBBA also places limits on the amount of federal student loan debt that graduate and professional students can take on.

Before the law, graduate and professional students could borrow up to $138,500, including undergraduate loans. Beginning July 1, 2026, the lifetime cap is $100,000 for graduate students, while the annual cap for unsubsidized loans is unchanged at $20,500. Professional students, such as those in medical or law school, face an annual cap of $50,000 and a lifetime cap of $200,000.

All federal student loans combined are subject to a lifetime cap of $257,500, not including parent PLUS loan amounts. The amount actually available to each borrower still depends on the school’s cost of attendance.

The OBBBA ties federal loan eligibility to how well graduates fare in the job market. Programs must compare their graduates’ earnings with those of working adults with less education.

Programs that fail this test in two out of three years lose eligibility for federal Direct loans. Colleges must also warn students if a program fails.

Private colleges have paid an excise tax on endowment income since the enactment of the 2017 Tax Cuts and Jobs Act, which set the rate at 1.4%. Beginning in the 2026 tax year, the OBBBA replaces the flat rate with a graduated tax ranging from 1.4% to 8%, depending on endowment size relative to enrollment.

The OBBBA reshapes how families pay for a college education by eliminating some loan options, capping how much can be borrowed, and replacing most income-driven repayment plans with the new RAP. If you or your child plan to borrow to pay for college in 2026 and beyond, understanding how these rules change the way you take on and repay student loan debt can help you better plan for college costs. To stay informed about loan limits, repayment plans, and eligibility requirements, check StudentAid.gov or talk with your school’s financial aid office before making borrowing decisions.