Beginning July 1, 2026, the federal student loan system will undergo its most sweeping overhaul in decades. These changes will reshape borrowing limits, repayment options, and forgiveness pathways for millions of students and families. Below, we break down the key updates, what they mean for new and current borrowers, and how to prepare.
1. Loan Borrowing Limits Are Changing
Beginning July 1st, federal borrowing caps will tighten significantly for new borrowers:
- Parent PLUS Loans will be capped at $20,000 per year and $65,000 total per student
- Graduate students will continue to be limited to $20,500 annually, with a new $100,000 aggregate cap
- Professional students (medical, veterinary, pharmacy, and others) will have a $50,000 annual cap and $200,000 aggregate cap
- Graduate PLUS Loans will be eliminated
Note that borrowers continuing in the same program with a Federal Direct Loan disbursed prior to July 1, 2026 can continue borrowing a Parent PLUS and/or Graduate PLUS Loan under the previous provisions for an additional 3 years or until the program concludes (whichever comes first).
Next Steps for You
Explore other sources of college financing that don’t include annual and aggregate caps, including MEFA Undergraduate Loans and MEFA Graduate Loans.
2. The SAVE Plan Is Ending, and Millions Must Choose a New Plan
More than 7 million borrowers currently enrolled in the SAVE plan will be required to transition to a new repayment plan. Starting July 1st, the Department of Education will notify borrowers enrolled in SAVE and give them 90 days to select a new plan. Those who do not act will be automatically moved into the Tiered Standard Repayment Plan, which may result in higher monthly payments.
Next Steps for You
If you’re currently enrolled in the SAVE Plan, you should receive a notification from the Department of Education that explains your repayment options. Prepare to select a new plan immediately.
3. Forgiveness Programs Are Being Restructured
Several existing income‑driven repayment (IDR) plans that offer forgiveness after 20–25 years are being eliminated or phased out. Borrowers who are enrolled in ICR or PAYE must transition out of those repayment plans by June 30, 2028. If no action is taken, borrowers will be automatically moved into the new Repayment Assistance Plan (RAP). If borrowers want to stay in an IDR plan, they must enroll in IBR by June 30, 2028.
Next Steps for You
If you’re enrolled in ICR or PAYE, determine if you want to eventually transition into the new RAP or into IBR (your two choices for income-driven plans). Call your servicer to discuss the differences and ask how to enroll in IBR if you select that plan. And remember that IBR is only available for loans disbursed before July 1, 2026.
4. The Repayment System Is Being Streamlined to Just Two Plans for New Borrowers
For borrowers taking out new federal loans on or after July 1, 2026, the repayment landscape becomes much simpler, but also more restrictive with just two available plans:
- Tiered Standard Repayment Plan
- Fixed payments over 10–25 years
- Repayment Assistance Plan (RAP)
- Income‑driven with payments set at 1%–10% of income
- Forgiveness after 30 years
Next Steps for You
If you’ll be a new borrower after July 1st, determine whether you would like to eventually enroll in the Tiered Standard Repayment Plan or the RAP.
5. There’s a New “Schedule of Reduction” (SOR)
Starting July 1st, the government is introducing a strict Schedule of Reduction (SOR). If you are enrolled less than full-time, your federal loans will be automatically prorated based on your exact number of credits. If you drop a class mid-semester and fall below the full-time threshold, your financial aid office will recalculate your aid.
Next Steps for You
If you plan on being a part-time student, know that you will only be eligible for a prorated amount of federal student loans. And during the semester, if you’re thinking of dropping a class, speak to the financial aid office first to find out how your loans will be altered as a result.
Continuing Guidance
These changes are significant, but you don’t need to navigate them alone. MEFA will continue to provide clear, timely guidance to help you understand your options and make informed decisions. If you have specific questions about your loans, it’s best to call your loan servicer. But if you have general questions about federal loans or repayment, we’re happy to help. Reach out to us at (800) 449-MEFA (6332) or [email protected].
