The Evolving Landscape of Student Loans Under the Trump Administration

The Trump administration and Congress have been actively reshaping the federal student loan system, impacting how much Americans can borrow and how quickly they must repay. These changes, driven by the One Big Beautiful Bill Act (OBBBA), aim to streamline repayment options, address overborrowing, and reduce the overall cost of higher education. However, these reforms have also sparked concerns about access to affordable repayment plans and the potential for increased defaults.

Borrowers have spent much of 2025 trying to keep up with dizzying changes to the federal student loan system. The Education Department is now rushing to finalize new rules and regulations implementing the OBBBA that will transform repayment and loan forgiveness.

Key Legislative Changes and Their Objectives

In July, President Trump signed into law a massive legislative package that makes major changes to federal higher education policy. The law restructures the federal student loan repayment system. According to Under Secretary of Education Nicholas Kent, the Working Families Tax Cuts Act offers a once-in-a-generation opportunity to lower tuition costs and improve the student loan system to better support borrowers.

The key objectives of these changes include:

Curbing overborrowing: By eliminating the Grad PLUS program and setting new loan limits, the administration aims to prevent students from accumulating unmanageable debt.
Simplifying repayment: Streamlining repayment options is intended to reduce borrower confusion and improve the repayment experience.
Aligning repayment with ability to pay: The introduction of the Repayment Assistance Plan (RAP) seeks to ensure that borrowers' payments are aligned with their income, preventing loan balances from growing due to unpaid interest.

The July 1, 2026, Cutoff: Two Distinct Groups of Borrowers

The OBBBA establishes a significant cutoff date of July 1, 2026, which divides student loan borrowers into two distinct groups with different rights and responsibilities. Borrowers with loans taken out before this date retain access to some existing repayment plans but lose access to others. Borrowers who take out loans after July 1, 2026, face fewer options.

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Borrowers with Loans Before July 1, 2026

Borrowers who have federal student loans that were disbursed prior to July 1, 2026, will be able to retain access to at least some existing repayment and student loan forgiveness options. Currently, there are nearly a dozen federal student loan repayment plans, including repayment plans designed to pay off student loans in full over time, such as the Standard, Extended and Graduated repayment plans. There are also several income-driven repayment programs that allow borrowers to make payments based on their income and family size, with any remaining balance eligible for student loan forgiveness, typically after 20 or 25 years. IDR plans include Income-Contingent Repayment, Income-Based Repayment, and Pay As You Earn (ICR, IBR, and PAYE, respectively). There is also the SAVE plan, but that plan has been blocked for more than a year and is now set to be eliminated once a federal judge approves a pending settlement agreement to resolve a longstanding legal challenge.

Under the OBBBA, several IDR plans will be eliminated. The ICR and PAYE plans will be phased out by July 1, 2028 (SAVE was supposed to be phased out on that timeline, as well, but will almost certainly disappear much sooner than that now, under the pending settlement agreement). But borrowers who took out their student loans before July 1, 2026 will be able to maintain access to the IBR plan, which the Education Department recently expanded to higher income earners in accordance with the provisions of the OBBBA. They will also be able to maintain eligibility for the Standard, Extended, and Graduated plans, as well.

These borrowers will also be able to enroll in the new Repayment Assistance Plan, or RAP, which is a new IDR option created under the OBBBA that is expected to launch later this year. While RAP will have some significant benefits including a principal and interest subsidy that will prevent student loans from ballooning over time due to runaway interest, and more affordable payments than IBR in some cases, RAP will also have no caps or limits on monthly payments, a much less generous definition of family size as compared to existing IDR plans, and a 30-year repayment term before a borrower can qualify for student loan forgiveness. In some cases, this could make RAP more expensive overall than the “legacy” IDR options.

Experts say borrowers who have already taken out loans and do not plan to consolidate them will be grandfathered into some legacy repayment plans.

Borrowers with Loans On or After July 1, 2026

The repayment and student loan forgiveness landscape is going to be much different for borrowers who take out any new federal student loans, or consolidate their existing loans through the federal Direct consolidation loan program, on or after July 1, 2026. These borrowers will lose access to all currently available repayment plans and will be limited to just two options: a tiered Standard repayment plan on a 10 to 25 year term (depending on the size of their loan balance), or RAP.

Importantly, taking out any new federal student loans (or consolidating existing loans) on or after this cutoff would cause the borrower’s entire student loan balance, including any pre-2026 student loans, to lose access to the legacy repayment plans like IBR. In other words, if you already have, say, $100,000 in federal student loans, and then you take out just $1,000 in new federal student loans on or after July 1, 2026, your entire federal student loan balance (in this example, $101,000) would lose eligibility for IBR and the other legacy repayment plans. Borrowers pursuing student loan forgiveness would be limited to RAP only, which means 30 years in repayment.

RAP would also be the only eligible repayment plan option for those who are pursuing Public Service Loan Forgiveness. Since RAP has no cap or upper limit on payments, this could make student loan forgiveness under PSLF more expensive overall for certain borrowers.

In addition, Parent PLUS borrowers who take out any new student loans on or after July 1, 2026 would effectively be cut off from any income-driven repayment plan and any option for repayment-based student loan forgiveness, including through PSLF. These borrowers must jump through several hoops, including applying to consolidate their loans (if they haven’t already done so) no later than April 1, 2026, to have any shot at maintaining access to existing repayment plan options. And any prospective students going back to school (or going to college for the first time) who take out new student loans on or after July 1, 2026 will be subject to new, restrictive borrowing limits, as well. That could limit their ability to finance their degree, at least through federal student loans.

The bill ends the Grad PLUS loan program, a type of loan for graduate and professional schools that previously allowed students to borrow up to the full cost of attendance, for any borrowers starting a program on or after July 1, 2026,” explains NCLC in its blog post. “The bill also adds a number of new limits on how much students and parents can borrow in federal student loans, with limited exceptions for students that have already borrowed loans and are currently enrolled.”

For loans taken out after July 1 of this year, borrowers will only have two repayment plans to choose between: a new standard plan (which is different from the current standard plan) and one income-driven repayment plan. Some experts believe streamlining the repayment options will lead to less confusion among borrowers.

The Repayment Assistance Plan (RAP)

For borrowers worried they don't earn enough to cover the standard plan's rigid monthly payments, Republicans created the RAP for future and current borrowers alike. Payments would, for the most part, be based on borrowers' total adjusted gross income (AGI), and the department will waive any interest that is left after a borrower makes their monthly payment. The result: Borrowers in good standing will no longer see their loans grow. In fact, Republicans want to make sure borrowers see their balances go down every month. For those whose monthly payments are less than $50, the government would match whatever they do pay and apply it toward the principal.

While other plans offer forgiveness of remaining debts after 20 or 25 years, the RAP would delay that to 30 years. Borrowers with typical levels of debt "and typical incomes for their degree level are almost always gonna pay off well before they hit that 30-year mark," Cooper says. "So if you're going into RAP, I wouldn't be thinking about forgiveness because you're probably gonna pay it off."

According to government data, about 3.6 million people held Parent PLUS loans last year, totaling about $116 billion.

New Borrowing Limits

Beginning July 1, 2026, new loans will be subject to new borrowing limits. New limits will make it harder for lower- and middle-income borrowers to attend pricier graduate schools. Republicans are shutting down the current grad PLUS program, which allows students to borrow up to the cost of their degree.

After July 1, grad students' borrowing will be capped at $20,500 a year. Borrowers working toward a professional graduate degree (think medicine or law) will have their borrowing capped at $50,000 a year. Parents and caregivers who use parent PLUS loans to help students pay for college will also see new loan limits. They will be capped at $65,000 per child.

Federal undergraduate loans taken out by students in their own names are not affected by new loan caps. Graduate PLUS loans, which allowed students to take out the full cost of tuition regardless of the amount, will no longer be available. Students pursuing graduate degrees will have new annual loan limits of $20,500 and lifetime limits of $100,000.

The Act eliminates the Grad PLUS program, which allowed unlimited borrowing and contributed to rising graduate tuition, and the proposed rule introduces commonsense annual and aggregate loan caps for graduate and professional programs. These new caps will compel colleges and universities to prioritize students, and incentivize institutions to reduce tuition and fees, making higher education more affordable and preventing students from being burdened with unmanageable debt after graduation. The proposed rule also allows institutions to establish program-level loan caps below the statutory limits. These stricter borrowing limits would provide colleges and universities with the authority to set appropriate loan caps to the true cost of an academic program, helping to prevent overborrowing in programs with lower earnings or higher default rates.

Potential Consequences and Concerns

While the Trump administration touts these changes as a way to lower tuition costs and improve the student loan system, some experts and advocates have raised concerns about their potential consequences.

Reduced access to affordable repayment: The elimination of certain income-driven repayment plans and the limitations on loan amounts could make it more difficult for some borrowers to manage their debt.
Increased reliance on private loans: With new limits on federal loans, students may turn to private lenders to fund their education, potentially incurring higher interest rates and fewer consumer protections.
Potential for higher default rates: If borrowers struggle to repay their loans under the new system, default rates could rise, leading to wage garnishment and other negative consequences.

The "Precipice of a Default Cliff"

Amidst all this change, data shows that millions of borrowers are struggling to keep up with their payments. 5.5 million borrowers in default, another 3.7 million more than 270 days late on their payments and 2.7 million in the early stages of delinquency. That's more than 1 in 4 federal student loan borrowers - a crisis raising bipartisan alarm. America is at "the precipice of a default cliff." It is thought that the country is headed for historic default rates, for a while. Meanwhile, the Education Department confirmed it plans to resume wage garnishment for defaulted borrowers in early 2026.

The Trump administration’s actions on student loans have triggered an unprecedented nationwide student loan delinquency and default crisis that has maximized Americans’ financial distress, not only for borrowers but also their families and communities. During the first year of the Trump administration, the student loan delinquency rate rose from roughly zero to nearly 25 percent of borrowers delinquent.

Delinquency rates are higher for Black and Native American borrowers, reaching nearly 50 percent for these groups. Delinquency rates are higher for those from lower-income backgrounds.

Navigating the Changes: Advice for Borrowers

Given the complex and evolving nature of the student loan landscape, it is crucial for borrowers to stay informed and take proactive steps to manage their debt.

Understand your options: Research the different repayment plans available to you and choose the one that best fits your financial situation.
Consider consolidation: If you have multiple federal student loans, consolidating them into a single loan could simplify repayment and potentially lower your interest rate.
Avoid default: If you are struggling to make your payments, contact your loan servicer to explore options such as deferment, forbearance, or income-driven repayment.
Stay informed: Keep up-to-date on the latest changes to student loan policies and regulations by following reputable news sources and government websites.

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