Leadership
Student Loan Repayment Rules: What Borrowers Must Know
New student loan overhaul repayment requirements hit July 1, 2026: just two plans, RAP's AGI-based bills, and the timing trap. See what to do before you borrow.
The student loan overhaul repayment requirements taking effect July 1, 2026 are the biggest change to federal loans in a generation. The Department of Education finalized its rule on May 1, 2026, collapsing a confusing menu of plans into just two. The date you act now decides what you pay for the next 30 years.
Quick answer
Starting July 1, 2026, new borrowers get only two repayment choices: the Tiered Standard Plan (fixed 10 to 25 years) and the Repayment Assistance Plan (RAP), an income-driven plan tied to your full AGI. RAP is the only one of the two that counts toward Public Service Loan Forgiveness. Existing borrowers keep their legacy plans only if they take no new loans after that date.
Key takeaways
- One new loan after July 1, 2026 converts all your debt to the two-plan system and forfeits legacy IDR benefits.
- RAP charges 1% to 10% of your AGI, with a $10 minimum and no $0 payment, so most monthly bills rise versus the old SAVE plan.
- RAP is the only PSLF-eligible plan for new borrowers; the Tiered Standard Plan does not qualify.
- About 7.4 million SAVE borrowers get rolling 90-day notices to pick a plan or be auto-enrolled in Standard.
- RAP forgives the balance after 30 years, and that forgiven amount is taxed as income.
What changed on July 1, 2026
The reforms come from the One Big Beautiful Bill Act (P.L. 119-21), enacted in July 2025. The Department of Education turned that law into rules with its Reimagining and Improving Student Education regulation, published May 1, 2026. Most provisions started July 1.
The headline: the old buffet of plans is gone for new borrowers. No more SAVE, no PAYE for new enrollees, no stacked Graduated or Extended menus. New borrowers choose between two paths, and the choice is sticky.
We track shifts like this in our business concepts library because one policy date can quietly reshape a household balance sheet for decades.
The two repayment plans explained
The Tiered Standard Plan sets a fixed term based on what you owe: 10 years for smaller balances, up to 25 years for the largest. Payments stay level and predictable. It does not adjust for income, and it does not count toward PSLF.
The Repayment Assistance Plan (RAP) is the new income-driven option. It charges a slice of your adjusted gross income, not your discretionary income. That single difference is why many borrowers will pay more each month than they did under SAVE.
| Feature | RAP (income-driven) | Tiered Standard Plan |
|---|---|---|
| Payment basis | 1% to 10% of AGI | Fixed by balance |
| Minimum payment | $10/month (no $0) | Fixed installment |
| Term | 30 years | 10 to 25 years |
| Forgiveness | After 360 payments (taxable) | None (loan paid in full) |
| PSLF eligible | Yes | No |
| Dependent credit | Minus $50/child/month | None |
How RAP payments actually work
RAP runs on a sliding scale. AGI of $10,000 or less means the flat $10 minimum. Above that, the rate climbs one point per $10,000 of income, reaching a 10% cap once you clear $100,000. There is no upper escape for high earners.
Then RAP subtracts $50 a month for each dependent child you claim. A borrower earning $60,000 with no dependents pays about $250 a month. A borrower at $25,000 with two kids drops to the $10 floor after the dependent credit.
Two protections sweeten the math. RAP waives unpaid monthly interest when you pay on time, so the balance does not balloon. It also matches your principal by up to $50 a month. The Congressional Research Service brief lays out the full sliding scale.
One small loan taken on July 2, 2026 can quietly cost you a decade of repayment flexibility on debt you already had.
The timing trap every borrower must understand
This is the rule people miss. All your loans must sit on the same plan. So if you hold pre-July 2026 loans and then borrow even a small new one after that date, your whole portfolio drops into the two-plan system. Your legacy IDR options vanish.
The practical move: finish any planned borrowing before July 1 if you want to keep older, more flexible plans. Treat the decision like a high-stakes pitch, using the same structured discipline behind our 3-minute structured speech examples.
What SAVE borrowers need to do now
A federal court vacated the SAVE plan on March 10, 2026. Starting July 1, servicers send rolling 90-day notices to roughly 7.4 million SAVE borrowers, in tranches about two weeks apart. The clock is individual, not a single national deadline.
Miss your 90-day window and the servicer auto-enrolls you in the Standard or Tiered Standard plan, neither of which counts toward PSLF. Interest has accrued on SAVE balances since the forbearance ended, so chasing forgiveness means moving early rather than waiting for the letter.
You do not have to wait. The Department confirms you can contact your servicer at any time to enroll in a lawful plan before your notice arrives.
PSLF, PAYE, and the plans being retired
Public Service Loan Forgiveness survives, but the door narrows. The Department confirmed in late April 2026 that on-time RAP payments count toward the 120 needed for PSLF. The new Standard Plan does not. So nonprofit and government workers chasing forgiveness must choose RAP.
Switching plans does not reset your tally. If you already logged 80 qualifying payments under IBR or SAVE, those carry into RAP. PAYE and ICR are sunsetting: new PAYE enrollments close July 1, 2027, and both plans end permanently July 1, 2028, with borrowers moved to IBR or RAP.
New borrowing limits for 2026-27
The overhaul also caps how much you can borrow. Graduate students are limited to $20,500 a year and $100,000 lifetime. Professional students get $50,000 a year and $200,000 lifetime. Parent PLUS is capped at $20,000 per student annually and $65,000 lifetime, and Grad PLUS is eliminated entirely.
New borrowers also face tighter forbearance: only 9 months of paused payments across any 2-year period. Parent PLUS borrowers who want any income-driven option must consolidate before June 30, 2026, since Parent PLUS loans cannot enroll in RAP directly. Listing that timeline cleanly, the way a clear resume orders dates, beats scrambling at the deadline, as our guide to listing affiliations on a resume shows.
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Frequently asked questions
If I take a new federal loan after July 1, 2026, what happens to my old loans?
All of your loans move to the new two-plan system. Taking out any new federal loan on or after July 1, 2026 subjects every loan you hold, even old ones, to RAP or the Tiered Standard Plan and forfeits legacy IDR benefits. Finish borrowing before July 1 to preserve flexibility.
Will my monthly payment go up under RAP?
Most likely yes. RAP uses AGI rather than discretionary income and charges 1% to 10% with a $10 monthly minimum, so it eliminates the $0 payments some borrowers had and generally costs more each month than the now-defunct SAVE plan.
Can I still get Public Service Loan Forgiveness?
Yes, but only through RAP. RAP is the only PSLF-eligible plan for post-July 2026 borrowers, so anyone pursuing public-service or nonprofit forgiveness must enroll in RAP, not the Tiered Standard Plan, which does not count toward the 120 qualifying payments.
Can I switch off RAP later if it does not work for me?
No. RAP is irreversible once you enroll, and it requires authorizing the IRS to share tax and dependent data for annual recalculation. Model your income, dependents, balance, and PSLF status before committing.