New Student Loan Rules for 2026 Explained
Jul 6 2026
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The One Big Beautiful Bill Act (OBBBA), later named the Working Families Tax Cuts Act and signed into law in July 2025, brought changes to federal student loan rules. Many of those changes took effect on July 1, 2026.
It’s important for new high school graduates planning to attend college in 2026, returning college students, and their parents, along with anyone currently carrying student loan debt, to understand the new student loan rules and what they mean for your financial future.
Limited Choices in Repayment Plans for New Direct Loans
The new law limits choices for student loan repayment plans. The law was designed to simplify loan repayment and avoid scenarios where required monthly payments, based on income, are so small that loan balances go up as interest accrues. Beginning July 1, 2026, borrowers who take out new Direct Loans can choose from one of two plans:
Repayment Assistance Plan (RAP)
The new Repayment Assistance Plan (RAP), essentially designed as a substitute for several IDR (income-driven repayment) plans no longer available to new borrowers, sets monthly payments at 1% to 10% of a borrower’s income, with a minimum monthly payment of $10. Payments are reduced by $50 per month for each dependent claimed on taxes, but can’t drop below $10.
If the borrower’s minimum required payments do not cover the full interest charges, the lender waives the additional interest charges as long as the borrower continues to make on-time payments.
If the minimum payment doesn’t cover at least $50 worth of loan principal, the US Department of Education will match up to $50, but only to the extent the loan balance will be reduced by $50 that month.
In other words, as long as the borrower makes on-time payments, the loan balance will drop by at least $50 every month, regardless of the amount of the required minimum monthly payment.
The RAP plan offers student loan forgiveness only after 30 years of qualifying payments.
Tiered Standard Plan
The tiered standard plan is designed to make monthly loan payments more affordable by allowing borrowers to choose from fixed monthly payments with terms of 10, 15, 20, or 25 years based on the total loan amount.
Previously, a borrower with a $30,000 loan would have 10 years to repay the loan, with minimum monthly payments of $341. The new plan allows borrowers to take 15 years to repay $30,000, resulting in payments of $262, according to the Department of Education website.
Current Borrowers May Have to Choose a New Repayment Plan
If you’re in the midst of paying off a Direct Loan, your repayment plan might be phased out in the next several years.
If impacted, you will be able to choose from either of the choices above, (a tiered standard plan or repayment assistance plan), or from the legacy Income-based Repayment (IBR) plan, the only older plan existing under the new rules (and only available for certain loans taken out before July 1, 2026).
Borrowers on a PAYE (Pay As You Earn) or ICR (income-contingent repayment plan) must choose a new plan by July 1, 2028. If you have one of these two loan types, you will have to choose another plan within 90 days of receiving notification from your loan servicer, according to the Department of Education website.
Beginning July 1, 2026, federal student loan Servicers are supposed to begin issuing notices to borrowers, like you, providing 90 days to choose a new repayment plan (either the IBR plan, a tiered standard plan, or RAP). New borrowers as of July 1, 2026 will not have access to the IBR plan, only RAP or tiered standard.
Borrowers who don’t choose will automatically be enrolled in either the tiered standard or RAP plan.
The End of Grad PLUS Loans for Many Borrowers
Major changes also came to graduate school federal loans. The Department of Education isn’t issuing new Grad PLUS loans except in rare cases.
You might still qualify for a Grad PLUS loan if you:
- Were enrolled in a certain graduate or professional program by June 30, 2026
- Had a federal Direct Loan for the same program prior to July 1, 2026
In essence, existing students with a Direct Unsubsidized or a Grad PLUS loan disbursed before July 1, 2026 may qualify. The student might be eligible for Grad PLUS for a limited time.
That time limit is the shorter of:
- Three academic years or
- The published length of the program minus program time completed prior to July 1, 2026.
If the student withdraws, transfers or switches to a different program, takes longer than the calculated time to complete the program, or completes the program and begins a new degree program, they lose eligibility for Grad PLUS.
New graduate students as of July 1, 2026 or those who lose access to Grad PLUS loans can take out Direct Unsubsidized Loans for up to $20,500 per year ($100,000 aggregate limit) for graduate students and up to $50,000 per year ($200,000 aggregate limit) for qualifying professional students.
Parent PLUS Borrowing Caps to Understand
Borrowers taking out new Parent PLUS loans as of July 1, 2026 will be subject to borrowing caps of $20,000 per year and $65,000 total per dependent student. It’s important to note that this limit is per student, not per parent.
If the student is enrolled in the same program by June 30, 2026 and the student or parent already has a Direct Loan for the program prior to July 1, 2026, the limits may not apply.
Lower Borrowing Limits for Part-time Students Taking Out Loans
Part-time students will generally find their borrowing limits prorated for federal student loans as of July 1, 2026. Students still need to attend at least half-time to qualify for Direct Loans, but if they are taking a course load of roughly 75% of full-time credits, they will only be eligible for a loan worth 75% of full-time student eligibility.
Previously, students attending at least part-time (50% course load) would qualify for the same Direct Loan limit as a full-time student, subject to eligibility and attendance costs.
New Temporary Federal Loan Interest Rates
The US government and Department of Education has introduced lower interest rates for Direct Loans on a temporary basis, available only for loans disbursed between July 1, 2026 and July 1, 2027.
The new interest rates are as follows:
Undergraduate Direct Subsidized and Unsubsidized Loans: 6.52%
Graduate Direct Unsubsidized Loans: 8.07%
Parent PLUS and qualifying transition-period Grad PLUS loans: 9.07%
Reduced Interest Rates for Auto Pay: Limited Time Only
If you are enrolled in Auto Pay for your federal student loans by July 1, 2026, you’ll receive an interest rate reduction of 1% through June 30, 2028. To qualify, you must enroll for Auto Pay by September 30, 2026.
This applies to federal Direct Loans initiated after July 1, 2012.
Pro Tip: If you stop Auto Pay, you’ll lose the reduction.
Conclusion and Action Steps
As students graduate and move on to undergraduate studies at four-year colleges, professional or trade schools, or graduate programs, it’s important to understand the new student loan rules.
These rules apply to federal student loans, not private loans. Filling out the FAFSA (Free Application for Federal Student Aid) is usually the first step to finding money for college, especially through scholarships and federal student loans.
Disclaimer: It's always best to seek professional guidance on student loan options or paying for college. Speak with a college financial aid advisor or a qualified student loan counselor.
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Sources:
https://fsapartners.ed.gov/sites/default/files/2026-05/FrequentlyAskedQuestionsLoanLimits.pdf
https://edfinancial.studentaid.gov/income-driven-repaymentinformation-center/ibr
https://financialaid.tcnj.edu/update-on-federal-loan-changes-beginning-in-2026/
https://www.ed.gov/media/document/rise-final-rule-fact-sheet-113947.pdf
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