Big Student Loan Changes Are Coming in July —And Many Borrowers Are Unprepared

The Department of Education is implementing a range of changes on July 1 that federal student loan borrowers need to know.

About 42.8 million Americans hold federal student loan balances.12 Yet, almost two-thirds of borrowers are unaware of upcoming student loan changes set to be implemented in a few weeks, according to a survey by Credible, a lender comparison platform.3

Some upcoming changes are the result of the congressional "One Big, Beautiful Bill," that was passed last year. Other changes stem from executive orders and federal court rulings.

About one in six American adults holds student loan debt, and these changes by the Department of Education will affect the vast majority of them. If borrowers are not up to date with the updates, it could have lasting impacts on consumer spending and the economy.

The Repayment Assistance Plan, also called the RAP plan, is the newest income-driven repayment plan that is expected to open up for applications on July 1.

Under the "One Big, Beautiful Bill," the RAP is the only income-driven plan available to college students who borrow federal student loans after July 1.

Monthly payments will be calculated based on 1% to 10% of their income, depending on their earnings, and borrowers can subtract $50 per dependent child per month. (Borrowers can estimate their specific monthly payment using this calculator from The Institute of Student Loan Advisors.)

The RAP also introduces a new interest waiver that no other repayment plan has. Borrowers with low payments can get their unpaid interest waived, and the Department of Education will contribute $50 per month to ensure some part of the principal is paid.

For some borrowers, these policies will work better for their finances than existing payments. However, others could end up paying thousands more in total on the RAP plan.

RAP will be the only income-driven repayment plan option for new borrowers, while existing borrowers should consider moving to RAP if they are on plans that will be phased out over the next two years.

Borrowers still on the Biden-era Saving on a Valuable Education plan will be pushed out starting on July 1.

Millions of borrowers have been in limbo for almost two years, awaiting the result of a lawsuit challenging the legality of the SAVE plan. As they waited, SAVE borrowers were placed in forbearance for almost two years. Federal courts officially ruled the SAVE plan illegal in March.

Starting on July 1, loan servicers will contact borrowers in batches, informing them they have 90 days to select another repayment plan. If the borrower takes no action to transfer, they will be moved to a standard repayment plan.

Amid the chaos of the COVID-19 pandemic and the now-defunct SAVE plan, millions of borrowers have fallen into default, meaning they have not made a payment for more than 270 days. There are currently about 8.8 million in default, and millions more in delinquency.

The Education Department said it is working to bring defaulted borrowers, some of whom have not made payments for several years, back into repayment.

While the Department of Education did not respond to a request for comment on when collections would officially restart, officials in the past have said garnishment for defaulted borrowers will begin once provisions under the "One Big, Beautiful Bill" take effect.

Defaulted borrowers can request loan rehabilitation or loan consolidation now to avoid wage garnishments later.

In a month, the Department of Education will be able to restrict which borrowers can get forgiveness through the Public Service Loan Forgiveness program.

The PSLF program discharges a borrower's remaining federal student loan balance after they have concurrently made payments and served as a public servant or worked at a nonprofit organization for 10 years.

However, an executive order signed in March 2025 gave the Department of Education the ability to strip borrowers of eligibility for this program if they work for organizations that "engage in activities" with a "substantial illegal purpose."

The Education Department said it will specifically target organizations that violate federal immigration laws, support terrorism, engage in gender-affirming care for minors, or utilize illegal discrimination.4

Many student loan advocates have criticized this rule, saying it "politicizes" the PSLF program. An active lawsuit started by several non-profit organizations against the PSLF rule claims it violates constitutional rights and breaches the Education Department's authority.5