Federal Student Loan Program Introduces Major Changes to Repayment and Borrowing Limits

The federal student loan system has undergone substantial reforms aiming to restructure repayment options and borrowing capacities for students and their parents. Effective July 1, these changes impact income-driven repayment plans, graduate student loan limits, and Parent PLUS loans.

One of the most significant changes is the elimination of the Saving on a Valuable Education (SAVE) repayment plan. Loan servicers are now notifying borrowers of a 90-day period to select a new plan or be automatically enrolled in an alternative. Additionally, other income-driven plans like Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) are slated for discontinuation by July 2028. New plans, including a tiered standard repayment plan and the Repayment Assistance Plan (RAP), have been introduced to replace the discontinued options.

Borrowing limits for graduate and professional students have also been revised. The Graduate PLUS loan program has been discontinued, with eligible students now limited to the Direct Unsubsidized Loan program. Annual and lifetime borrowing caps have been lowered significantly; graduate students can now borrow up to $20,500 annually, and professional students up to $50,000 annually, with specific aggregate limits. A federal court ruling has temporarily halted a narrower definition of professional programs, impacting loan eligibility.

Finally, Parent PLUS loans now have new annual and lifetime limits. Previously, parents could borrow up to their child's cost of attendance. New borrowers are now capped at $20,000 per dependent student annually, with a lifetime aggregate limit of $65,000 per student. While these limits may be justified by the high interest rates on these loans, their rapid implementation could pose challenges for families relying on them. The reforms aim to stabilize the federal loan program and manage associated risks.