Student Loan Overhaul Takes Effect July 1 — Payments Set to Skyrocket for Millions

A new era for federal student lending, starting today

Tens of millions of current and future student loan borrowers are waking up to a fundamentally different federal lending system. Provisions of President Trump's One Big Beautiful Bill Act take effect July 1, eliminating multiple Biden-era income-driven repayment options, capping how much students and parents can borrow, and routing future loan administration from the Education Department to the Treasury Department.nbcnews In the first quarter of 2026, roughly 43 million borrowers held nearly $1.7 trillion in outstanding federal student debt — with 2.6 million having already slipped into default during the pandemic payment pause.nbcnews

The most immediate shock will fall on the more than 7 million borrowers enrolled in the Biden-era Saving on a Valuable Education plan, widely seen as the most borrower-friendly repayment option in the program's history. SAVE is ending, and borrowers have at least 90 days to migrate to one of two new options.nbcnews Under the replacement Repayment Assistance Plan, monthly payments are calculated from adjusted gross income, with a floor of $10 a month even for those earning under $10,000 annually — and forgiveness eligibility only after 30 years.nbcnews Lori Correa, a single mother of three in North Carolina who earns about $60,000 a year and owes roughly $200,000, estimates her monthly payment would jump from $150 to $713 under the new plan.nbcnews

Borrowing caps reshape graduate and parent lending

For new borrowers starting Wednesday, Grad PLUS loans no longer exist as an uncapped option.universityherald Graduate students pursuing standard programs may borrow up to $20,500 per year and $100,000 total; those in professional fields such as law or medicine face a $50,000 annual cap and a $200,000 lifetime ceiling.nbcnews +1 Parents are limited to $20,000 per dependent per year, capped at $65,000 per child over a lifetime.washingtonpost The Education Department's undersecretary said the limits would prevent students from "racking up excessive loan debt," though student advocacy groups warn the caps will push lower-income students toward higher-rate private loans or out of higher education entirely.nbcnews

Existing graduate students enrolled before July 1 receive a three-year exemption from the new caps.nbcnews One immediate legal complication: a federal judge last week issued a stay blocking the Department's narrowed definition of "professional degrees," which affects which graduate fields qualify for the higher $200,000 ceiling — though the caps themselves remain in force.universityherald

Interest rates and an autopay carrot

Interest rates on new federal loans are also climbing, independent of the bill. Undergraduate unsubsidized loans now carry a 6.52% rate; graduate borrowers face 8.07% — compared with 2.75% and 4.30% respectively five years ago.nbcnews To soften the impact, the Education Department is offering a 1% interest rate reduction for borrowers who enroll in autopay by September 30 — triple the existing 0.25-point discount, though it expires in June 2028.nbcnews Advocacy groups have called the concession inadequate. "This is essentially a Band-Aid on a bullet wound," said Aissa Canchola Bañez of Protect Borrowers.nbcnews