New Borrowing Limits for Parents and Graduate Students
Starting July 1, new federal student loan regulations significantly alter how much families can borrow to fund education. Under the revised Parent PLUS loan program, parents can now borrow a maximum of $20,000 per year, capped at $65,000 per student. Graduate students face similar restrictions, with a new limit of $100,000 for their entire program, while those in certain professional fields can borrow up to $200,000 but only $50,000 per year. These changes come as part of the "One Big Beautiful Bill Act," which aims to streamline the student loan system amid a national student loan debt of nearly $1.9 trillion.
Impact on Existing Borrowers
Borrowers currently enrolled in the Biden-era Saving on a Valuable Education (SAVE) plan will also feel the impact of these changes. Payments have been paused for approximately 7.2 million individuals while a legal battle unfolded. As of July 1, these borrowers must select a new repayment plan or risk being automatically switched to a standard repayment plan. Experts emphasize the importance of keeping contact information updated with loan servicers to avoid any disruptions.
New Repayment Plans Introduced
Beginning on July 1, borrowers taking out new federal student loans will have only two repayment options: the Tiered Standard Plan and the new Repayment Assistance Plan (RAP). Current borrowers who do not take out new loans can continue with existing plans, but those in the PAYE and Income-Contingent Repayment plans must transition to another option by July 1, 2028. The Department of Education will notify SAVE borrowers of their need to choose a new repayment plan within 90 days.
Changes to Pell Grant Eligibility
The new legislation also tightens eligibility for the Pell Grant program, which offers financial assistance to low-income students. Under the new rules, students receiving non-federal grants or scholarships that cover their attendance costs will no longer qualify for additional Pell Grant funding. Furthermore, the law closes what has been termed the "Pellionaire loophole," which allowed individuals with significant assets but low incomes to receive Pell Grants. New provisions also expand Pell Grant eligibility to shorter-term workforce training programs, enabling students in fields like nursing assistance and early childhood education to receive funding.
Legal Challenges to Forgiveness Programs
In a related development, a federal judge has blocked a Trump administration rule that would have stripped public service workers of eligibility for federal student loan forgiveness. The ruling, made by U.S. District Judge Myong Joun, sided with Democratic-led states and organizations that argued the new rule would target groups engaged in advocacy work, including those supporting immigration rights and transgender healthcare. The Public Service Loan Forgiveness Program allows borrowers to have their loans forgiven after ten years of qualifying work, and more than a million borrowers have benefited since its inception in 2007.
Navigating the Transition
As these changes take effect, experts urge borrowers to reassess their financial situations and consult with loan servicers. Winston Berkman-Breen, legal director of Protect Borrowers, emphasized the importance of staying informed and proactive. "If you have not been paying attention to your loans for four, five, six years, totally understandable. But now is the time to make sure your contact information is up to date," he said.
