Trump Student Loan Changes Take Effect July 2026: A Guide to the New Repayment Assistance Plan

For the roughly 43 million Americans carrying federal student loans, the biggest structural change to the system in a decade took effect on July 1, 2026. Under the Trump administration’s One Big Beautiful Bill Act, marketed by the Department of Education as the Working Families Tax Cuts Act, the federal repayment landscape narrowed to just two plans for new borrowers: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan. The Biden-era Saving on a Valuable Education (SAVE) plan is officially ending, and Grad PLUS Loans are eliminated for new borrowers. This guide walks through what actually changed, how the new RAP plan calculates your payment, and how to evaluate your options if you already have federal student loan debt or are about to take on new debt.

On July 1, 2026, the Repayment Assistance Plan (RAP) replaced most federal student loan repayment options, reshaping how the roughly 43 million Americans carrying federal student debt will pay it back.

What Actually Changed on July 1, 2026

The Working Families Tax Cuts Act was signed into law in July 2025, and its student loan provisions became effective on July 1, 2026. Three major shifts took place at once. First, new federal student loan borrowers can now choose only between RAP and the new Tiered Standard Plan. Second, Grad PLUS Loans are no longer available for new graduate or professional students, and both Parent PLUS Loans and total graduate borrowing now have hard caps. Third, existing SAVE plan enrollees, roughly 7.2 million borrowers according to reporting from CBS News, are being notified by their servicers that they must switch to a new plan within 90 days.

Existing borrowers who are not in SAVE and have not taken out any new loans after July 1, 2026 can generally remain on their current plan, including the original Income-Based Repayment (IBR) plan, at least until July 1, 2028. That is when the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans phase out entirely.

The New Repayment Assistance Plan (RAP)

RAP is the only income-driven repayment plan available for federal student loans disbursed after July 1, 2026. It differs significantly from the income-driven plans it replaces.

• Payment formula: 1% to 10% of your adjusted gross income (AGI), depending on how much you earn, with a minimum monthly payment of $10 if your income is below $10,000 per year. Unlike prior income-driven plans, RAP does not use a discretionary income calculation tied to the federal poverty guideline; it uses AGI directly.
• Dependent reduction: Your monthly payment is reduced by $50 for each dependent you claim on your federal tax return.
• Matching principal payment: If your on-time monthly payment reduces the loan principal by less than $50, the federal government contributes up to $50 each month toward your principal balance.
• Interest waiver: Any unpaid monthly interest is waived for borrowers who make on-time payments, ending the runaway interest that historically caused balances to grow under prior income-driven plans.
• Forgiveness timeline: Any remaining balance is forgiven after 30 years of qualifying payments. Forgiveness through RAP is taxable as income under current IRS rules, unless a specific exclusion applies.
• Autopay discount: A 1% interest rate reduction is available if you enroll in autopay.

A concrete example from the Department of Education fact sheet: an unmarried borrower with no dependents, a $35,000 loan balance, and a $45,000 annual income would have paid roughly $176 per month under prior income-driven plans. Under RAP, the monthly payment is $150, with an additional $40 in unpaid interest waived each month and a $50 principal matching payment, meaning the balance goes down every month that the borrower pays on time. That is a meaningful shift from SAVE and the original IBR, where low or zero payments often caused balances to grow.

However, the 30-year forgiveness timeline is longer than the 20 to 25 years available under prior plans, and total interest paid over the life of the loan can be higher for borrowers who stay on RAP for the full term. Betsy Mayotte of the Institute of Student Loan Advisors noted in Time magazine coverage that RAP tends to benefit borrowers with high debt relative to income, while some middle-income borrowers may pay more over time than they would have under legacy plans.

The New Tiered Standard Plan

The Tiered Standard Plan replaces the traditional 10-year Standard Repayment Plan for new borrowers. Instead of a fixed 10-year term, the payoff period now scales with how much you borrowed.

The larger your balance, the longer you have to repay, which reduces monthly payments but increases total interest paid. Importantly, the Tiered Standard Plan does not qualify for Public Service Loan Forgiveness (PSLF). Borrowers pursuing PSLF who take out new loans after July 1, 2026 will need to enroll in RAP to have their payments count toward the 120-payment forgiveness threshold.

What Happens to SAVE, PAYE, ICR, and Legacy IBR

The transition timeline depends on which plan you are on now.

• SAVE plan enrollees must switch to another plan within 90 days of receiving notice from their servicer. Loan payments for SAVE borrowers have been paused since July 2024 during the legal challenges that led to the plan being ruled unconstitutional.
• PAYE and ICR will fully phase out by July 1, 2028. Borrowers still enrolled on that date will be automatically moved to RAP, or to IBR if they are not RAP-eligible.
• Legacy IBR remains available to existing borrowers until July 1, 2028, provided they do not take out any new federal loans or consolidate. New enrollments in the original IBR are closed as of July 1, 2026.
• Standard, Extended, and Graduated plans remain available for existing borrowers who do not take out new loans after July 1, 2026.

Parent PLUS Loan borrowers who want access to any income-driven repayment must consolidate their loans before July 1, 2026, according to reporting from Yahoo Finance. After that date, new Parent PLUS Loans are not eligible for RAP at all.

Public Service Loan Forgiveness Under the New Rules

PSLF still exists, and the Department of Education confirmed in an April 2026 final rule that on-time payments made under RAP count toward the 120-payment threshold for PSLF forgiveness. However, the pathways have narrowed. The Tiered Standard Plan does not qualify for PSLF. For new borrowers, RAP is essentially the only path to PSLF eligibility going forward.

Existing borrowers on legacy IBR, PAYE, or ICR remain PSLF-eligible while those plans exist. If you are pursuing PSLF and were on SAVE, you need to move to a qualifying plan quickly to avoid gaps in your qualifying payment count. Verify your payment history on StudentAid.gov every quarter and file an employment certification form annually.

New Borrowing Limits

The Working Families Tax Cuts Act introduced hard caps on federal student loan borrowing that did not exist before.

• Grad PLUS Loans are eliminated for new graduate and professional students who take out federal loans for the first time after July 1, 2026, or who enroll in a new program.
• Graduate students can now borrow up to $20,500 per year and $100,000 lifetime through Direct Unsubsidized Loans. Professional programs are capped at $200,000 lifetime.
• Parent PLUS Loans are capped at $20,000 per year and $65,000 total per student, ending the prior structure that allowed borrowing up to the full cost of attendance. Parents of currently enrolled students can continue borrowing under the older rules for up to three years or until the student completes their program.

For students whose federal aid does not cover the full cost of attendance under the new caps, private student loans, scholarships, work-study, and family contribution become the primary alternatives. A federal court has paused a portion of the graduate lending caps affecting certain healthcare programs (nursing, physician assistants, physical therapy), so the final structure for those fields is still moving through litigation as of July 2026.

New Interest Rates for 2026-27

Federal student loan interest rates are fixed for the life of each loan and set once a year based on the May 10-year Treasury Note auction. For loans first disbursed between July 1, 2026 and June 30, 2027:

• Direct Subsidized and Unsubsidized Loans (undergraduate): 6.52%, up from 6.39% the prior year
• Direct Unsubsidized Loans (graduate and professional students): 8.07%, up from 7.94%
• Direct PLUS Loans (Parent PLUS and remaining Grad PLUS): 9.07%, up from 8.94%

These rates are set through a statutory formula that adds a fixed margin to the Treasury yield. All new loans this academic year will carry these rates for their full repayment term, regardless of how the Federal Reserve changes short-term rates in future years.

Private Refinancing: A One-Way Door

Some high-income, high-credit borrowers may look at private refinancing to secure a lower rate. The trade-off is permanent: refinancing federal student loans with a private lender extinguishes all federal protections, including access to RAP, PSLF, income-driven forgiveness, borrower defense to repayment, and federal deferment or forbearance options. You cannot undo that decision. According to Bankrate, private student loan refinance rates in mid-2026 start just below 4% for the most creditworthy borrowers and reach into the double digits for others, so the rate advantage over the 6.52% federal undergraduate rate is not always meaningful once you factor in the loss of the federal safety net.

If you are considering refinance, request a side-by-side written comparison of your current federal plan’s total cost against the private loan’s total cost, including any variable-rate risk. Treat private refinance as a one-way door, not a reversible experiment.

How to Evaluate Your Options Right Now

• Log in to StudentAid.gov and use the updated Repayment Calculator to see your projected payments under RAP and the Tiered Standard Plan.
• If you are on SAVE, contact your servicer immediately to select a new plan before the 90-day notice window expires.
• If you are pursuing PSLF, verify that your current plan qualifies. Existing borrowers can generally remain on legacy IBR, PAYE, or ICR through July 1, 2028; new borrowers need RAP.
• If you have Parent PLUS Loans and want future access to income-driven repayment, consolidate before the July 1, 2026 deadline (which has passed) or evaluate other options with your servicer.
• Compare the total lifetime cost of RAP versus the Tiered Standard Plan for your specific balance and income. RAP has lower monthly payments and forgiveness, but 30 years of interest accrual can lead to a higher total repayment.
• Check your credit report for any misreported payment status. The transition to new plans has created reporting errors for some borrowers.

The Bottom Line

• The Repayment Assistance Plan (RAP) is now the only income-driven federal student loan repayment option for new borrowers, with payments set at 1% to 10% of AGI and forgiveness after 30 years.
• RAP includes real protections that prior income-driven plans lacked: a $50 monthly matching principal payment, an interest waiver on unpaid interest for on-time payments, and a $50 reduction per dependent.
• The Tiered Standard Plan does not qualify for Public Service Loan Forgiveness. For PSLF, new borrowers must enroll in RAP.
• Grad PLUS Loans are eliminated for new borrowers, and graduate and Parent PLUS borrowing now has hard caps.
• SAVE plan enrollees have 90 days after notice from their servicer to switch plans. Existing IBR, PAYE, and ICR enrollees generally have until July 1, 2028 to transition.
• New 2026-27 interest rates are 6.52% undergraduate, 8.07% graduate, and 9.07% PLUS.
• Private refinancing permanently severs federal protections. Do the total-cost math before choosing that path.

Frequently Asked Questions

How does RAP calculate my monthly payment?
RAP sets payments at 1% to 10% of your adjusted gross income, depending on income level, with a minimum of $10 per month if you earn less than $10,000 per year. Your payment is reduced by $50 for each dependent you claim. The Department of Education pulls your AGI from the IRS annually if you provide consent, or you can upload your tax return manually.

Can I still get PSLF under the new rules?
Yes. Public Service Loan Forgiveness still forgives your remaining balance after 120 qualifying monthly payments while working full time for a government or nonprofit employer. For new borrowers, only RAP qualifies as an eligible payment plan for PSLF. The Tiered Standard Plan does not count. Existing borrowers on IBR, PAYE, or ICR remain PSLF-eligible while those plans are still available.

What if I am currently on the SAVE plan?
SAVE is officially ending. If you were enrolled, you should receive a notice from your servicer indicating you have 90 days to switch to another plan. Options include RAP (if you want income-driven repayment and PSLF eligibility), the Tiered Standard Plan, or legacy plans if you are grandfathered in. Contact your servicer immediately if you have not received a notice by mid-July 2026.

Should I refinance my federal student loans with a private lender now?
Not without a total-cost comparison. Refinancing federal loans with a private lender permanently ends access to RAP, PSLF, and all federal safety net programs. The rate advantage for well-qualified borrowers over the 6.52% federal undergraduate rate is often smaller than expected once you factor in the loss of federal protections. Get a written side-by-side comparison before deciding.

What are the new federal student loan interest rates?
For loans first disbursed between July 1, 2026 and June 30, 2027, the fixed rates are 6.52% for undergraduate Direct Subsidized and Unsubsidized Loans, 8.07% for graduate Direct Unsubsidized Loans, and 9.07% for PLUS Loans. These rates are locked for the life of each loan.

How do I compare RAP to the Tiered Standard Plan for my situation?
Compare the total amount you would repay over the life of the loan, not just the monthly payment. The Tiered Standard Plan has higher monthly payments and a fixed payoff of 10 to 25 years depending on your balance, while RAP stretches to 30 years with income-based payments and potential forgiveness. RAP often costs less over time for borrowers with high debt relative to income; the Tiered Standard Plan often costs less for borrowers with modest balances and stable income. Use the Repayment Calculator on StudentAid.gov to see both projections side by side.

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