Trump’s major student loan repayment overhaul is a month away

Student loan borrowers, get ready: big changes are coming.

For nearly a year, President Donald Trump’s Department of Education has been preparing to implement the sweeping student loan changes enshrined in the administration’s “big, beautiful” spending bill.

After negotiation, public comment and ongoing litigation, these changes will take effect on July 1. They include a new repayment plan, borrowing limits for advanced degrees and the elimination of programs that allow students and parents to borrow the full cost of tuition.

The Education Ministry said the changes were aimed at simplifying a complex student loan repayment system and curbing excessive borrowing. However, borrower advocates and Democratic lawmakers have expressed concerns that the changes could increase borrowers’ monthly bills by hundreds of dollars and drive some toward riskier private student loan products.

Deputy Education Secretary Nicholas Kent said in an April statement that the repayment overhaul “addresses long-standing problems in higher education and federal student loans, including exorbitant tuition costs, uncontrolled borrowing, and a confusing maze of repayment options that too often leave borrowers with higher balances despite their payments.”

Here are the main changes coming to student loan borrowers next month.

New repayment plans

Two new student loan repayment plans will roll out on July 1: the Repayment Assistance Plan and a standard tiered repayment plan.

PAR is intended to replace existing income-driven repayment plans, but its terms are less generous. A borrower’s monthly RAP payment would be based on their adjusted gross income, ranging from 1% to 10% of AGI. This differs from income-driven repayment plans, which set aside a portion of a borrower’s income for basic monthly expenses and calculate the monthly payment based on the lower amount.

The terms of delivery of the PAR differ from those of existing plans. While current income-driven plans allow payments to be forgiven after 20 or 25 years, RAP would forgive loans after 30 years.

The ministry is also rolling out a standard tiered plan on July 1. Under the plan, borrowers would repay their loans in full over a repayment period based on the amount of their principal balance, with a minimum payment of $50 per month.

For example, borrowers with a balance of less than $25,000 would have a repayment period of 10 years, while those with a balance of $100,000 or more would have a repayment period of 25 years.

Borrowers taking out their first student loan on or after July 1 will only have access to RAP and the tiered plan.

Transitioning out of the SAVE plan

The SAVE plan was created by former President Joe Biden to offer borrowers cheaper monthly payments and a shorter time frame for loan forgiveness. Now that it has been eliminated, 7 million enrolled borrowers will have to exit the plan and start repaying on a new plan.

The Department of Education said that starting July 1, agents will begin sending notices to SAVE borrowers informing them of their deadline to move to a new plan. Borrowers will have 90 days to make this transition, and if they take no action, their servicers will automatically place them on the standard or installment repayment plan.

The most recent notice was sent to SAVE borrowers in late May. The notice, reviewed by Business Insider, states that borrowers do not need to wait until July to switch plans.

“By choosing a new repayment plan and making payments now, you will pay off your debt faster than if you remain on the SAVE plan in a forbearance that adds to your loan balance,” the notice states.

Student loan borrowers are still hoping to overturn the decision in court. In March, four borrowers – represented by law firm Public Goods Practice – filed a lawsuit seeking relief for SAVE borrowers, and the litigation is ongoing.

New borrowing limits

A key debate in Trump’s repayment overhaul focused on new borrowing limits for advanced degrees. The Department of Education will impose a lifetime borrowing limit of $100,000 for graduate students and a lifetime borrowing limit of $200,000 for professional students. The department also limits the professional cap to 11 programs, including medicine, dentistry and law.

The Parent PLUS program will also face new caps. While previously allowing parents to borrow the entire cost of their children’s program participation, borrowing parents will face a borrowing limit of $65,000 for each child starting in July.

Advocates, borrowers and lawmakers of all stripes are pushing the Department of Education to change its definition of a professional degree to include advanced nursing programs. While the department said the majority of nursing programs would fall under the lower borrowing cap, 25 Democratic-led states said in a recent lawsuit that those limits would exacerbate the current shortage of health care workers.

“Higher education is expensive, and our health care system is already under immense strain,” Letitia James, New York’s attorney general, said in a statement alongside the lawsuit. “This rule will exclude talented people from critical professions and leave communities with fewer health care providers that they desperately need.”

Do you have a student loan story to share? Contact this reporter at [email protected].

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