How Student Loan Repayment Changed

Federal student loan repayment changed significantly on July 1, 2026. WTTW Chicago described it as "sweeping changes" in a report published August 4, and that framing is accurate.¹

Here is what actually changed, who it affects, and what borrowers need to do.

The Short Version: Fewer Choices for New Borrowers

Anyone whose first federal Direct Loan is disbursed on or after July 1, 2026, is now a "new borrower" under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025.² New borrowers have two repayment options going forward:

1. Standard Repayment Plan — Fixed monthly payments over 10 to 25 years, depending on how much you borrowed. Higher balances get longer terms.
2. Repayment Assistance Plan (RAP) — An income-driven plan that sets your payment at 1% to 10% of your adjusted gross income (AGI), with a floor of $10 per month if you earn under $10,000 per year.

That is the complete list for new borrowers. PAYE (Pay As You Earn), ICR (Income-Contingent Repayment), and SAVE (Saving on a Valuable Education) are gone for loans disbursed starting this fall.²

What RAP Actually Looks Like

RAP is the only income-driven repayment option available for new borrowers, so it helps to understand what it does.

Payment calculation: Monthly payments are set at 1% to 10% of AGI. The exact percentage depends on your income relative to the poverty line. If you have dependents, the payment drops by $50 per month per dependent.²

Interest protection: One meaningful improvement over older plans is that RAP eliminates negative amortization. If your income-based payment doesn't cover all the interest for a given month, the government subsidizes the gap. Your loan balance cannot grow above its original amount while you're making payments.

Forgiveness timeline: Loans are forgiven after 30 years under RAP — longer than the 20-year window under PAYE, but with lower monthly payments in the early years for lower earners. If you have a high balance and expect a low-to-moderate starting salary, the math often favors RAP over the Standard Plan.

What RAP doesn't cover: Parent PLUS Loans are not eligible. If you borrowed through Parent PLUS, those loans are not part of this change.

30 years — Compared to 20 years under PAYE for undergraduate borrowers. Lower payments early in your career offset the longer timeline.

What If You Already Have Loans?

If all your federal loans were disbursed before July 1, 2026, nothing changes right now. You stay on your current repayment plan and nothing is automatic.

The catch: if you're currently enrolled in PAYE, ICR, or SAVE, you have until July 1, 2028 to switch to IBR (Income-Based Repayment), the Standard Plan, or RAP. After that date, the government will automatically move anyone still on those plans into RAP.¹

The SAVE plan is already effectively frozen because of ongoing court challenges. If your loans are sitting in SAVE with no active payment processing, that limbo will resolve before 2028 — and you'll need to have a plan ready.

If you're on PAYE, ICR, or SAVE, you have time — but not unlimited time. Waiting until 2028 means you'll have fewer options to explore and less time to adjust if the plan you land on doesn't work for your situation. Reviewing your options now costs nothing.

IBR Is Still Available — With a Catch

Income-Based Repayment (IBR) was not eliminated. But under the OBBBA, IBR is only available for borrowers whose first loan was disbursed before July 1, 2026.² If you're starting college this fall and borrowing for the first time, IBR is not an option.

This matters because IBR offers a 20-year forgiveness window for borrowers who took out loans after July 2014, which is a shorter timeline than RAP's 30 years. Existing borrowers keeping IBR are holding onto something new borrowers can't access.

One Action That Still Applies to Everyone

The auto-pay interest discount on federal loans increased from 0.25% to 1.0% starting July 1, 2026. Anyone who enrolls in automatic payments before September 30, 2026 locks in that 1% discount through June 30, 2028.

On a $30,000 balance at 6.52% (the current undergraduate rate), a 1% reduction saves roughly $300 per year — or about $600 over the two-year benefit window.¹ This applies to new and existing borrowers alike. If you haven't set up auto-pay, do it before September 30.

How to Think About Your Decision

If you're a new borrower this fall:

• If you expect a lower starting salary (under roughly $45,000): RAP will likely produce a lower monthly payment than the Standard Plan, at least in the first several years. Use the Loan Simulator at studentaid.gov to compare estimated payments under both options at your expected income.
• If you expect a higher salary quickly: The Standard Plan's fixed payments may cost less in total interest over time, because the debt is paid off faster. Do the comparison.

Either way, the decision is worth 20 minutes. The average student loan debt for a bachelor's degree graduate is around $30,000. The repayment plan you choose now affects every year of your career until the balance is gone.

Before assuming federal loans are always the right call, also check out federal vs. private student loans — private rates can be lower for high-credit borrowers, but private loans come without the income-driven protections and forgiveness programs that the federal system offers.

The rules changed. The fundamentals of borrowing only what you can repay did not.

Footnotes

1. WTTW Chicago. (2026, August 4). Sweeping changes to student loans recently took effect. Here's what to know. https://news.wttw.com/2026/08/04/sweeping-changes-student-loans-recently-took-effect-here-s-what-know ↩ ↩² ↩³

2. National Association of Student Financial Aid Administrators (NASFAA). (2025). Federal student aid changes from OBBBA. https://www.nasfaa.org/uploads/documents/Federal_Student_Aid_Change_OB3.pdf ↩ ↩² ↩³ ↩⁴

3. U.S. Department of Education, Federal Student Aid. (2025, July 18). Federal student loan program provisions effective upon enactment under the One Big Beautiful Bill Act. https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2025-07-18/federal-student-loan-program-provisions-effective-upon-enactment-under-one-big-beautiful-bill-act ↩