Federal Student Loan Rules Are Changing Significantly Starting in July 2026 – Here’s What You Need To Know
Millions of borrowers will soon face new repayment options, updated forgiveness rules, and different borrowing limits. Here's what changes on July 1 and how they could affect your monthly payments.
Borrowers should review their repayment options before the new rules take effect.
Story:
July 1st is a big day for 43 million federal student loan borrowers as new repayment plans go into effect. Biden-era repayment plans will officially be phased out, and borrowers will have 90 days to choose a new repayment plan.
If you currently owe federal student loans, these changes will likely impact your monthly payment. Here’s what you need to know, and what to consider moving forward.
Key Takeaways
|
Brett Holzhauer is a senior financial writer and editor with over a decade of experience covering personal finance, investing, and the U.S. economy. His work has been featured in Forbes and CNBC, where he focuses on helping readers make sense of real-world financial challenges.
What Changes on July 1?
Beginning July 1, federal student loan borrowers will see significant changes to their repayment options. The most notable updates are the introduction of two new plans: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan.
These two plans replace several existing repayment plans; they will be phased out or restricted for new borrowers. While many current borrowers will be allowed to remain in their existing plans, future borrowers may have fewer repayment choices available.
The changes also affect how monthly payments are calculated, how long repayment lasts, and whether borrowers can qualify for loan forgiveness. As a result, borrowers should carefully review their options before selecting a repayment plan.
In addition, if you enroll in auto pay by September 30th, 2026, you will be eligible for a 1% interest rate deduction. This rate reduction goes through June 30, 2028.
The New Repayment Assistance Plan (RAP) Explained
The Repayment Assistance Plan (RAP) is a new income-driven repayment option that bases monthly payments on a borrower’s income rather than their loan balance.
How RAP Calculates Payments
Monthly payments generally range from 1% to 10% of adjusted gross income (AGI), with lower-income borrowers paying a smaller percentage. Unlike some existing income-driven plans, RAP requires a minimum monthly payment of $10.
Loan Forgiveness Under RAP
Borrowers who make qualifying payments can receive forgiveness on any remaining balance after 30 years. This is longer than the 20- or 25-year forgiveness timelines available under many existing income-driven repayment plans.
Unique RAP Benefits
RAP includes a $50 monthly payment reduction for each qualifying dependent. Some borrowers may also receive assistance that helps reduce principal balances over time. Additionally, RAP payments count toward Public Service Loan Forgiveness (PSLF).
Potential Drawbacks
The longer 30-year forgiveness timeline may make RAP less attractive for some borrowers. The required $10 minimum payment also eliminates the possibility of a $0 payment for very low-income borrowers.
Borrowers should also review the consequences of switching plans carefully, as repayment history and forgiveness credit may not always transfer the same way between repayment programs.
Related Article: The Best Private Student Loan Refinancing Providers
What Happens to Existing Income-Driven Repayment Plans?
Income-Based Repayment (IBR)
Income-Based Repayment (IBR) remains available for eligible borrowers. Monthly payment amounts continue to depend on when a borrower first took out federal student loans, with different payment percentages applying to different groups of borrowers.
IBR also retains its forgiveness provisions, allowing remaining balances to be forgiven after 20 or 25 years of qualifying payments, depending on the borrower’s circumstances.
PAYE and ICR
The Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans are being phased out. Existing borrowers may be able to remain enrolled for a limited period.
In addition, these plans no longer provide a path to forgiveness under the new rules. However, some borrowers may choose to stay enrolled if PAYE or ICR produces a lower monthly payment than the alternatives available to them.
Understanding the New Tiered Standard Plan
How It Works
The Tiered Standard Plan is a new repayment option for federal student loan borrowers who prefer a predictable payoff schedule. Unlike income-driven repayment plans, monthly payments under the Tiered Standard Plan are fixed and are not based on income.
Borrowers are assigned a repayment term based on their total federal student loan balance. Generally, borrowers with larger balances receive longer repayment periods, helping spread payments out over more years.
Repayment Terms by Balance
|
Loan Balance |
Repayment Term |
|
Less than $25,000 |
10 years |
|
$25,000–$49,999 |
15 years |
|
$50,000–$99,999 |
20 years |
| $100,000 or more |
25 years |
Because payments remain fixed throughout the repayment period, borrowers know exactly how much they owe each month and when their loans will be paid off.
Who Might Benefit
The Tiered Standard Plan may appeal to borrowers with stable incomes who don’t need the flexibility of income-driven repayment. It may also be a good fit for those focused on paying off their debt rather than pursuing loan forgiveness.
Borrowers with relatively modest loan balances may benefit most, as they could receive a shorter repayment timeline while avoiding the complexity of income-based repayment plans.
How to Decide Which Repayment Plan Is Right for You
The best repayment plan depends on your income, loan balance, career goals, and whether you’re pursuing loan forgiveness. Use the table below as a starting point.
|
If This Sounds Like You… |
Consider |
| My income is low compared to my student loan balance. |
RAP |
| I need the lowest possible monthly payment. |
RAP |
| I work for a government agency or a qualifying nonprofit and am pursuing PSLF. |
RAP |
| I want flexibility if my income changes over time. |
RAP |
| My income is stable and predictable. |
Tiered Standard Plan |
| My loan balance is manageable, and I want to pay it off. |
Tiered Standard Plan |
| I want a clear payoff date instead of waiting for forgiveness. |
Tiered Standard Plan |
| I don’t expect to benefit from loan forgiveness programs. |
Tiered Standard Plan |
| I’m already enrolled in an existing IDR plan and working toward forgiveness. |
Review carefully before switching |
Existing Borrowers Should Think Carefully Before Switching
Current borrowers should avoid assuming that a new repayment plan is automatically better. Depending on the plans involved, repayment history and forgiveness credit may be treated differently when switching.
Before making any changes, review how a new plan could affect your monthly payment, total repayment costs, and progress toward forgiveness. Taking time to compare options now may help prevent costly surprises later.
Final Thoughts
The administration’s overall sentiment is to streamline repayment and get millions of people back into repayment plans. There’s over $1.6 trillion in outstanding federal student loan debt, and millions of people are either behind or in default.
However, if you currently have federal student loans and are displeased with the new repayment options, you may consider refinancing your student loans.
Writer’s note: I never had federal student loans, but had nearly $80,000 in private student loans. I refinanced my loans several times and paid off my student loans within 8 years of graduation.
