Major Federal Student Loan Changes Set for July 1

Starting July 1, the federal student loan system will implement significant changes that will alter how students borrow money and repay their debts. These updates, resulting from legislation signed by President Donald Trump, are intended to simplify the repayment process and increase accountability within the federal lending system.

One of the most impactful changes is the elimination of the Grad PLUS program for new borrowers. Previously, this program allowed graduate and professional students to borrow the full cost of their education. Under the new rules, strict borrowing caps will be introduced. Graduate students will be limited to $20,500 annually, with a total lifetime limit of $100,000. Professional students - including those in law, medicine, and dentistry - will have a higher annual limit of $50,000 and a total cap of $200,000. Additionally, Parent PLUS loans will now be capped at $20,000 per year.

The government is also streamlining how loans are paid back. New borrowers will choose between only two options: the Repayment Assistance Plan (RAP) and the Tiered Standard plan. RAP is an income-based option that waives certain unpaid interest for borrowers who make on-time payments. The Tiered Standard plan provides fixed monthly payments over a period ranging from 10 to 25 years.

However, policy experts warn that these restrictions could make higher education less accessible. Critics argue that the new loan limits will create a funding gap, forcing students to rely on private lenders, which often charge higher interest rates and offer fewer protections. There are also concerns that these changes will disproportionately affect low-income and marginalized students, potentially hindering their ability to pursue advanced degrees.

Furthermore, the administration has begun transferring the responsibility for collecting defaulted loans to the Treasury Department as part of a broader effort to restructure the Department of Education.