The One Big Beautiful Bill Act (OBBBA) and Student Loans: What You Need to Know

August 2025

<p>The One Big Beautiful Bill Act (OBBBA) and Student Loans: What You Need to Know</p>

The OBBBA introduces sweeping reforms to, among other things, the federal student loan system, which are set to take effect starting July 1, 2026. The law, signed on July 4, 2025, introduces new repayment plans, adjusts borrowing limits, and redefines eligibility for forgiveness through Income-Driven Repayment (IDR) programs. Understanding these changes is critical for making informed financial decisions.

Key repayment plan changes

OBBBA introduces two new repayment plans starting on July 1, 2026 — the new Standard Repayment Plan and the Repayment Assistance Plan (RAP) — and phases out existing IDR plans.

Plan NameMonthly PaymentsRepayment PeriodStatusDetails
New Standard Repayment PlanBased on the borrower’s loan balance and interest rates. The loan balance will determine the repayment term and monthly payment.• 10 years for balances of $25,000 or less
• 15 years for balances of $25,000–$49,999
• 20 years for balances of $50,000–$99,999
• 25 years for balances of $100,000 or more		Starts July 1, 2026.Parent PLUS Loans (consolidated or unconsolidated) are eligible for this plan.
Repayment Assistance Plan (RAP)Based on a percentage of the borrower’s adjusted gross income divided by 12.
$50 will be deducted from monthly payment for any family member or dependent listed on the borrower’s federal tax return.
Lowest minimum payment $10.
Interest subsidy. Matching principal payment up to $50.		30 yearsStarts July 1, 2026.Based on income, family size, and loan balance over a 30-year term. Parent Plus Loans (consolidated or unconsolidated) are not eligible for this plan.
Income-Based Repayment (IBR)10–15% of your discretionary income (and your spouse’s if filing jointly).
Never more than federal 10-year Standard Repayment Plan amount.		• 25 years for loans taken out before July 1, 2014
• 20 years for loans taken out after July 1, 2014		Remains available.No new loans disbursed on or after July 1, 2026. This includes consolidation loans.
• Will be the only original IDR plan available starting July 1, 2028.
• Consolidated Parent Plus Loans disbursed prior to July 1, 2026, will be eligible for IBR in the future.
• There is no income cap requirement as of December 22, 2025.
• Borrowers who do not have any new loans disbursed on/after July 1, 2026, will have the opportunity to apply for IBR from now until June 30, 2028. If they are not on the IBR plan by June 30, 2028, they will be placed on RAP.
Income-Contingent Repayment (ICR)The lesser of the following:
• 20% of your discretionary income, or
• What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.		25 yearsOnly available until June 30, 2028.
*If you do not apply for IBR prior to July 1, 2028, then you will be moved to the RAP.		Only option for Consolidated Parent PLUS borrowers before IBR eligibility.
No new loans disbursed on or after July 1, 2026. This includes consolidation loans.
Pay As You Earn (PAYE)10% of your discretionary income (and your spouse’s if filing jointly).
Never more than federal 10-year Standard Repayment Plan amount.		20 yearsOnly available until June 30, 2028.
*If you do not apply for IBR prior to July 2028, then you will be moved to the RAP.		No new loans disbursed on or after July 1, 2026. This includes consolidation loans.

Forgiveness and eligibility updates

  • Medical and dental residency/fellowship. The OBBBA was updated to allow payments made during medical or dental residencies and fellowships – assuming the employer is an eligible nonprofit or public service hospital – to count towards Public Service Loan Forgiveness.1
  • Parent PLUS Loans:
    • If the loans are consolidated prior to July 1, 2026, and/or on the ICR Plan, they will be able to apply for IBR in the future.
    • Any newly consolidated or unconsolidated Parent Plus Loans will only be eligible for the Standard Plan starting July 1, 2026.
  • Original IDR Plans (e.g., SAVE, ICR, PAYE, IBR):
    • Only IBR remains after June 30, 2028.
    • Borrowers must apply for IBR before July 1, 2028, or default to RAP. This excludes consolidated Parent Plus Loans disbursed prior to July 1, 2026. They will default to IBR Plan.

Undergraduate borrowing limits

Limits on New Loan Originations by School YearDependent StudentIndependent StudentSubsidized Limit from Overall Amount
Undergraduate Year 1$5,500$9,500$3,500
Undergraduate Year 2$6,500$10,500$4,500
Undergraduate Year 3$7,500$12,500$5,500

New borrowing limits effective July 1, 2026

  • Undergraduate limits are not changing.
  • Lifetime federal student loan cap is $257,500 (excludes Parent PLUS and Direct Plus Graduate Loans).
  • Students currently enrolled have a 3-year grace period to complete their program. If not completed during the grace period, they are subject to the new borrowing limits.
Borrower TypeAnnual Limit (per year)Limit Cap
Undergraduate$9,500, $10,500, $12,500$57,000
Graduate$20,500$100,000
Professional$50,000$200,000
Parent (per student)$20,000$65,000

Deferment, default, and rehabilitation

  • Deferment: Economic hardship and unemployment deferments end (in effect July 1, 2027).
  • Forbearance: Available in 9-month increments, up to 24 months total (in effect July 1, 2027).
  • Default: Loans can be rehabilitated twice with $10 minimum payments (in effect July 1, 2027). Consolidating out of default will be subject to the new Standard and RAP plans.

Explore your options with an expert guide

Have questions about how the OBBBA might affect your current or future student loans? Our student loan specialists can help you. Schedule a free 30-minute consultation to get started, learn more here.

IMPORTANT INFORMATION: Please note that if you refinance qualifying federal student loans, you will no longer be eligible for certain federal benefits or programs and waive your right to future benefits or programs offered on those loans, which may include, but are not limited to, Public Service Loan Forgiveness, Income-Driven Repayment plans, forbearance, or certain forgiveness options granted to Parent Plus borrowers. Please carefully consider your options when refinancing federal student loans and consult www.studentaid.gov for the most current information.

1

To qualify for Public Service Loan Forgiveness (PSLF), you must be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service); work full-time for that agency or organization; have Direct Loans (or consolidate other federal student loans into a Direct Loan); repay your loans under an income-driven repayment plan; and make 120 qualifying payments. For full program requirements, visit: studentaid.gov/manage-loans/forgiveness-cancellation/public-service.

Content provided for informational and educational purposes only and is in no way to be construed as financial, investment, or legal advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal financial issues.

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