The passage of the One Big Beautiful Bill Act (OBBBA), along with recent executive orders related to the SAVE Plan and student loans, has brought about numerous changes that have big implications for student loan borrowers and the federal student loan program.
Let’s dive into what these recent changes will mean for new and existing student loan borrowers and their financial wellness.
The change: Effective July 1, 2026, the OBBBA eliminates the Graduate PLUS loan program and caps the annual and total amount that graduate/professional students, and parents, can borrow for their and their dependents’ education respectively.
The OBBBA also establishes lifetime borrowing limits for all student loan borrowers and allows higher education institutions to establish program-level limits on the amount they may lend to students as well.
The new limits:
What it means for existing borrowers: Existing borrowers will be allowed to continue borrowing under current borrowing limits for the remainder of their programs.
What it means for new borrowers: Anyone who is planning to take out a student loan after July 1, 2026 will be subject to the new federal borrowing limits.
Other possible impacts: In the short-to-mid-term, the new borrowing limits on federal loans will most likely force many borrowers to seek alternative forms of funding for their (and their dependents’) education. The most likely source of alternative funding? Private student loans.
According to the Urban Institute, these new limits will affect a significant portion of graduate student borrowers in non-professional and professional programs alike; depending on the degree program, anywhere from 16-73% of graduate student borrowers already borrow more than the new annual limits for their programs, depending on the degree type.
As these borrower limits are not indexed for inflation, we could see this trend continue over time, especially if the cost of higher education continues to rise.
The change: Over the next few years, the OBBBA will reduce the number of the available Income-Driven Repayment (IDR) Plan Options from four to two by eliminating three existing IDR plans— Income-Contingent Repayment (ICR), Saving on a Valuable Education (SAVE), and Pay as You Earn (PAYE)—and adding one new plan, the Repayment Assistance Plan (RAP).
The OBBBA will also eliminate the partial financial hardship requirement for Income-Based Repayment (IBR) Plans, expanding access to the plan for federal student loan borrowers.
Under the new Repayment Assistance Plan, borrowers’ monthly minimum payments will be a tiered percentage of their AGI, with the lowest possible monthly payment being a flat $10 per month (for those who earn an AGI of $10,000 or less). The percentage of AGI owed increases by 1% for every $10,000 earned, with the max percentage capped at 10% for those who earn $100,000 or more. Unlike the other plans, RAP will forgive any remaining student loan balance after 30 years, instead of 20 or 25.
What it means for existing borrowers: Any borrower with existing student loans can continue to access all the IDR Plan options (assuming they meet the eligibility requirements) until July 1, 2026.
Any Parent PLUS borrowers will need to consolidate their loans and apply for an ICR plan before July 1, 2026 in order to continue to qualify for income-driven repayment.
After July 1, 2026, Borrowers enrolled in SAVE, PAYE, and ICR, will need to transition to IBR or RAP by July 1, 2028. If they don’t pick a plan before the deadline, borrowers will be enrolled in RAP by default after July 1, 2028. Borrowers with consolidated Parent PLUS loans who were previously enrolled in ICR will be enrolled in IBR by default after July 1, 2028.
What it means for new borrowers: Any borrowers who take out new student loans after July 1, 2026 will only have access to one IDR Plan, RAP, in addition to their standard repayment plan options. Parents who are taking out federal student loans on behalf of their dependents after July 1, 2026, will not be able to access any IDR Plans anymore.
Other possible impacts: The restructuring of available income-driven payment plans means a majority of borrowers on IDR plans will most likely end up paying more on their loans, either through higher monthly minimums and/or longer repayment periods.
As of Q3 2025, roughly ~10.3M borrowers (representing ~83% of all borrowers on an IDR plan) were enrolled in SAVE, ICR, or PAYE. Once they make the switch to RAP, an estimated 4.5M - 8.1M borrowers who were previously paying $0 per month may see their monthly minimums increased to at least $10 per month.
The changes: The OBBBA restricts future borrowers’ ability to defer their student loans or place them in forbearance if, for some reason, they are unable to make their monthly payments. Under the bill, any borrowers who take out student loans on or after July 1, 2027 will not be eligible for unemployment or economic hardship deferments. Additionally, these same borrowers will only be eligible for forbearance on their loans for up to 9 months in a 24 month period.
What it means for new borrowers: Previously, in the worst case scenario, borrowers who were unemployed (i.e. receiving unemployment benefits or actively job-seeking) or who were suffering from economic hardship (i.e. receiving welfare or another means-tested benefit, working in the Peace Corps, or earning less than a certain threshold amount), could apply to defer payments on their student loans for up to three years. While interest would continue to accrue on the loan principal, these deferments allowed these borrowers to suspend their student loan payments in order to make sure they could afford basic necessities.
After July 1, 2027, new borrowers will no longer be able to apply for these two types of deferment, although other types of deferment will still be available.
Other possible impacts: Currently roughly 280K borrowers have loans in deferment due to economic hardship or unemployment, representing 0.7% of all borrowers. However, US unemployment rates have been consistently low over the past several years as the US economy has remained strong. Should a major recession occur, future generations of borrowers will not be able to defer monthly payments on their student loans.
The change: The OBBA’s overhaul of the federal student loan program also included a new “low earnings outcome” accountability check that higher education institutions and programs must pass in order to remain eligible for the federal Direct Loan Program.
Effective as of July 1, 2026, undergraduate programs will need to show that the median earnings of someone who graduated from the program at least four years ago, is higher than the median earnings of “working adults” who only have a high school degree or GED. Graduate programs will need to demonstrate that the median earnings of someone who graduated from the graduate program is higher than the median earnings of “working adults” with a lesser degree.
What it means: Going forward, institutions will need to consistently demonstrate that enrolling in their degree programs are economically “worth it” in order to continue to qualify for the federal Direct Loan Program function. If they fail to meet the earnings requirement two out of three years in a row, programs may lose their ability to provide federal Direct Loans to its prospective students. If they lose eligibility, programs can reapply again after two years.
Other possible impacts: Early studies have found that most bachelor’s and professional graduate degree programs would pass the new earnings metric accountability tests, but 12% of associate degrees and 3% of masters programs would fail. Among those, associate degrees and master programs in teacher education, mental and social health services, health and medical administrative services had the highest failure rates, fueling fears among experts that this new accountability metric could exacerbate worker shortages in critical fields with lower pay such as education, healthcare administration, and social work.
The change: The OBBBA makes employer contributions to student loans permanently tax-free under Section 127 of the IRC. The bill also indexes the annual exclusion limit (currently $5,250) for inflation, and will begin to increase the annual limit beginning after 2026.
What it means for borrowers: Borrowers who are offered this benefit by their employers may be able to pay off their student loans faster and save thousands of dollars on interest and principal payments over the lifetime of their student loans.
What it means for employers: Employers who were already offering a tax-free student loan repayment benefit will be able to continue to offer this benefit to employees well beyond the end of 2025.
Other possible impacts: We may see a rise in the number of employers offering student loan repayments as a benefit as any employers who were previously hesitant to offer this benefit, due to the temporary nature of the tax-free status, may decide to start offering it going forward.
If you are an employer who is interested in offering a student loan repayment benefit now that it is permanently tax-free, Highway Benefits can help.
Our turnkey platform makes creating and administering an employer student loan repayments benefit, practically effortles—design and launch your benefit plan in as few as two weeks and ensure that all contributions are paid directly into your employees’ student loan accounts. Schedule a call with our team today to get started!
The change: As of August 1, 2025, student loans enrolled in the Saving on a Valuable Education (SAVE) plan will no longer enjoy 0% interest while in forbearance. While monthly payments on these loans will still remain paused for the time being, interest accrual will resume on borrowers’ outstanding principal loan balance.
What it means for borrowers: The ~8M borrowers enrolled in a SAVE plan will start to see interest accrue on their loans. They’ll either need to begin paying off the accruing interest or else they could see their loan balances grow. If left unpaid, the accrued interest may capitalize back into their loan in the future.
Once forbearance for loans enrolled in SAVE ends, borrowers will be responsible for paying their monthly minimum payments, plus any accrued interest. This could happen as early as September 2025.
Other possible impacts: Even though their loans will still be in forbearance, borrowers enrolled in SAVE will likely begin to feel more financial stress as interest begins to accrue on their loan balances again. The financial stress could pressure borrowers to begin cutting spending in other areas and result in detrimental effects, like higher burnout and churn and lower productivity, in the workplace.
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While the slate of recent changes to the federal student loan program are well-intentioned, time will tell whether or not they’re effective at reigning in the $1.6T student debt crisis.
Disclaimer: This article is purely information and is not intended as financial or legal advice. For more in-depth questions on how to interpret US laws or tax codes, we recommend you speak to a specialized attorney.
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