July to start with most student loan changes in decades. What to know

July 1 is less than 24-hours away and will bring the most sweeping overhaul in decades of federal student loans.

All borrowers, old and new, may be affected. New borrowers will face loan caps, elimination of Grad PLUS loans, and only two repayment options. Old borrowers may need to consolidate loans, choose new repayment plans or risk being involuntarily placed in one that may not fit their budget, loan experts said.

With so many changes in store, below is a list of some key changes borrowers should be aware of.

What's changing for Parent PLUS borrowers?

First, Parent PLUS loans get capped at $20,000 annually and $65,000 in total, unless:

• The student was enrolled in the program before June 30, 2026 and,
• The parent has taken a Parent PLUS loan disbursement or the student had a direct loan disbursed before July 1

If the loan limits exceptions are met, then Parent PLUS loans are uncapped for three academic years of continuous study, according to the National Association of Student Financial Aid Administrators (NASFAA).

Second, new Parent PLUS borrowers will only have one repayment option: the new tiered standard repayment plan. The tiered standard repayment plan offers a fixed monthly payment over 10 to 25 years.

Existing Parent PLUS loans can continue paying under the following repayment plans until their loans are fully repaid, but only if they do not borrow new Parent PLUS Loans on or after July 1:

• 10-year standard repayment plan, which has equal payments over 10 years.
• Extended repayment plan, which spreads payments out over a longer period, up to 25 years
• Graduated repayment plan, which begins with lower initial payments that automatically increase every two years.

If existing Parent PLUS loans are consolidated before July 1 and no new Parent PLUS loans are taken, borrowers can repay their loans under the income-contingent repayment (ICR) plan through June 30, 2028, when that plan sunsets. Parent PLUS Loan borrowers repaying under ICR will be moved to the income-based repayment (IBR) plan.

ICR payments are capped at 20% of discretionary income, while IBR payments are capped at either 10% or 15%, depending on when the loan was first taken. Both are eligible for forgiveness.

IMPORTANT: If Parent PLUS loans aren't consolidated by July 1, those borrowers will lose access to IBR plans and the shot at forgiveness.

What do borrowers on SAVE need to do?

The Saving on a Valuable Education (SAVE) repayment plan launched under former President Joe Biden is officially ending on July 1. About 7 million borrowers on that plan will receive notices from their servicers and have 90 days to switch to a new repayment plan.

Since any payments made while in the SAVE plan won't count towards Public Service Loan Forgiveness or income-driven repayment forgiveness, Stacey MacPhetres of Bright Horizons urges borrowers to switch as soon as possible.

Additionally, borrowers who don’t choose a plan will be automatically moved to the tiered standard repayment plan, which can lift monthly payment amounts, she said.

What do graduate students need to know?

Graduate student borrowers will see a host of changes, including elimination of Graduate PLUS loans for new borrowers and a new lifetime $100,000 limit on graduate school loans unless you're in a "professional" program.

"Professional" students have a new, higher annual loan limit of $50,000, with a new $200,000 lifetime cap. The following programs that are considered professional are:

• Pharmacy (Pharm.D.)
• Dentistry (D.D.S. or D.M.D.)
• Veterinary Medicine (D.V.M.)
• Chiropractic (D.C. or D.C.M.)
• Law (LL.B. or J.D.)
• Medicine (M.D.)
• Optometry (O.D.)
• Osteopathic Medicine (D.O.)
• Podiatry (D.P.M., D.P., or Pod.D.)
• Theology (M.Div. or M.H.L.)
• Clinical Psychology (Psy.D. or Ph.D.)

A lifetime federal loan limit of $257,500 applies to all student loans (excluding Parent PLUS loans) borrowed for all levels of study.

Existing Graduate PLUS borrowers are exempted from the new caps for three years if they continuously enrolled in the same program of study at the same institution as they were enrolled as of June 30 and had a loan disbursement before July 1, NASFAA said.

Repayment plans for graduate students will also be limited to either the tiered standard repayment plan or the Repayment Assistance Plan (RAP). RAP offers monthly income-based payments and qualifies for Public Service Loan Forgiveness or forgiveness after 30 years of repayment.

Existing Graduate PLUS borrowers may have other repayment options until July 2028 as long as they don't take out any new loans after July 1. Pay As You Earn, which caps monthly student loan payments at 10% of discretionary income and forgives any remaining balance after 20 years, and ICR plans will sunset on July 1, 2028. Borrowers using those plans will have to switch repayment plans before that.

How can borrowers get a discount?

If borrowers enroll in automatic payments, they'll be eligible for a 1% interest rate reduction beginning July 1, the Department of Education said last week in a release.

Borrowers who enroll in auto pay by September 30, or who are already enrolled, will benefit from the interest rate reduction through June 30, 2028, it said. Currently, servicers reduce a borrower’s interest rate by 0.25% if they're enrolled in auto-pay.

Before the COVID-19 pandemic, more than 80% of student loan borrowers in active repayment were enrolled in auto pay, compared with only 40% now, the Department said. 

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.