Student Loans Get Major Overhaul: No More Grad PLUS, Simpler Repayments
Published Date: 5/1/2026
Rule
Summary
Starting July 1, 2026, new rules will change how federal student loans work for grad students, parents, and professionals. The Grad PLUS loan is being phased out, and repayment plans are getting simpler with a fresh new income-driven option. Plus, folks who’ve defaulted before get a second chance to fix their loans and get back on track.
Analyzed Economic Effects
5 provisions identified: 3 benefits, 2 costs, 0 mixed.
New Loan Limits and $257,500 Cap
The rule creates new annual and aggregate loan limits and establishes a lifetime borrowing cap of $257,500 for most borrowers, takes effect July 1, 2026, and reduces annual loan amounts for students enrolled less than full-time. If you borrow federal student loans, these limits change how much you can borrow each year and in total.
Repayment Plans Overhauled and Simplified
Effective July 1, 2026, the rule phases out legacy plans (including ICR, PAYE, and SAVE), creates a Tiered Standard repayment option with fixed monthly payments over a 10-to-25 year term, and establishes the income-driven Repayment Assistance Plan that prevents negative amortization. If you have federal student loans, your eligible repayment choices for new loans change and the new Repayment Assistance Plan can help you actually pay down principal instead of letting interest grow.
Estimated Federal Budget Impact
The Department estimates a net budget impact of -$409.3 billion for loan cohorts 1994–2035 (an annualized reduction in transfers of about -$42.3 billion at 3% discounting) and estimates a $537 million net impact for the professional student definition for loan cohorts 2027–2036. These figures are part of the Regulatory Impact Analysis tied to the final rule.
Grad PLUS Program Phased Out
Starting July 1, 2026, the Department stops the authority to disburse new Graduate PLUS (Grad PLUS) loans and establishes limited Direct PLUS eligibility for graduate and professional students and changed limits for parents. If you are a graduate/professional student or a parent of an undergraduate, these changes alter which PLUS loans you can get and how much you may borrow.
Second Chance for Loan Rehabilitation
Beginning July 1, 2026, borrowers may rehabilitate a defaulted loan up to twice per loan for loans under the Federal Perkins Program, the Federal Family Education Loan Program (FFEL), and the Direct Loan Program. If you previously rehabilitated a defaulted loan, you can now potentially rehabilitate again and resume repayment.
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