Federal Student Loan Debt Changes – Here’s What You Need To Know

The Department of Education released new guidelines on April 30th outlining rules for the Federal Student Loan program. This was originally introduced in the Working Families Tax Cuts Act, which was signed into law in July 2025, and aims to reduce overall borrowing, simplify repayment for borrowers, and limit runaway federal student loan debt.

To help you navigate these upcoming changes, let’s break down what they mean.

For Future Federal Student Loan Borrowers

The Trump administration argues that unrestricted borrowing has contributed to rapidly rising tuition prices and allowed schools to increase costs without enough accountability.

To push back against this, the Department of Education has established new federal borrowing limits for graduate students, professional students, and parents borrowing through Parent PLUS loans.

Beginning July 1, 2026:

• The Grad PLUS program is being eliminated. Graduate students will now face a $20,500 annual borrowing cap and a $100,000 aggregate limit.
• Professional students will be capped at $50,000 annually and $200,000 total.
• Parent PLUS loans will now have a $20,000 annual limit and a $65,000 lifetime limit per dependent student.
• There is a lifetime federal loan cap of $257,500, with some exceptions.

For Those Repaying Federal Student Loans

Prior to these new rules, borrowers had several options for setting up repayment plans, including a 10-year Standard Plan, Graduated/Extended Plans (up to 30 years), and Income-Driven Repayment (IDR) options. Now, those plans have been eliminated, and borrowers can choose between two options to pay their loans back:

• Standard Repayment Plan: This plan has fixed monthly payments and spans 10 to 25 years, depending on your loan amount.
• Repayment Assistance Plan (RAP): This plan is based on your income. It set payments at 1% to 10% of your adjusted gross income (or a flat $10 per month if your income is less than $10,000 per year). It may be eligible for forgiveness after 30 years of repayment.

Deferment and Forbearance Rules Tighten

The administration is also reducing access to certain deferment options. Beginning July 1, 2027, new federal loans will no longer qualify for unemployment or economic hardship deferments.

However, borrowers will still retain access to deferments related to:

• Military service
• Cancer treatment
• In-school enrollment

Borrowers will also still be able to access general forbearance for up to nine months within a 24-month period.

Colleges Gain More Power to Limit Borrowing

The final rule also gives colleges and universities greater authority to cap the amounts students can borrow for specific programs.

Institutions may limit federal loan amounts for certain degree programs, provided the restrictions are applied consistently to all students in the same program.
Supporters argue this could help prevent students from taking on excessive debt for programs with poor earnings outcomes.

What Borrowers Should Consider Going Forward

As federal student loan rules become more restrictive, borrowers may need to be more strategic about borrowing and repayment. The new caps could make it harder to fully fund expensive graduate or professional programs with federal loans alone, especially at high-cost schools.

Borrowers should pay closer attention to expected salaries and return on investment before taking on large amounts of debt. Some students may also consider private student loan funding to secure a lower interest rate or a lower monthly payment. However, refinancing federal loans privately comes with tradeoffs. Borrowers typically lose access to federal protections like income-driven repayment plans, deferment options, and Public Service Loan Forgiveness.

For higher earners with stable income, refinancing may still make sense. Others may decide the flexibility and protections tied to federal loans are worth keeping.

Bottom Line

College debt remains one of the financial pain points for Americans trying to survive and prosper. More than four in ten borrowers (42%) say they’ve had to decide between making student loan repayments and covering basic needs.

As you’re considering student loans, be sure to consider what it will take to achieve your student loan payoff. Striving for higher education can be a great investment if done correctly, but it can also massively weigh down your wealth-building journey.