What Borrowers Need to Know About Changes in Federal Student Loans

Written by: Nichole Coyle, CFP® CSLP®

Interest Resumes for SAVE Plan Borrowers

As of August 1, 2025, almost 7.7 million borrowers enrolled in the SAVE (Saving on a Valuable Education) program will begin accruing interest again. The prior 0% interest forbearance, implemented in July 2024, was halted by federal court rulings this past week. It’s important to know that interest will not be applied retroactively, it will only begin accruing as of August 1st.

Borrowers will not be required to make payments immediately. However, once the forbearance ends, pending final court resolution, borrowers will owe accrued interest plus principal. The Department of Education has begun to reach out to affected borrowers, urging them to transition to other repayment plans.

Here is the link to the Department of Education’s announcement.

The “One Big Beautiful Bill” — Budget Law Overhaul

On July 4, 2025, the Trump‑backed budget reconciliation bill, commonly referred to as the “One Big Beautiful Bill,” was signed into law. It institutes sweeping revisions to how federal student lending works going forward.

Repayment Plan Consolidation

Starting with loans disbursed July 1, 2026 and after, the law eliminates most income‑driven repayment plans. This includes SAVE, PAYE, and ICR. Borrowers will have only two options:

• A Revised Standard Repayment Plan (10–25 year term based on loan size);
  
• A new income‑based Repayment Assistance Plan (RAP). This plan will include payments ranging from 1–10% of AGI, no cap, and a 30‑year term with forgiveness after 360 qualifying payments. RAP also includes interest assistance features for on‑time payers.
  

Existing borrowers must switch into one of the remaining plans such as IBR or RAP by July 1, 2028. This means there are less than three years left on most current repayment plans. It is extremely important to revisit your current repayment plan and consider your options and make appropriate changes.

Additional Student Loan Changes

Borrowing Caps Imposed

For those looking to borrow student loans for themselves or for a family member in the future, the bill places stricter borrowing limits:

• Graduate students: $100,000 lifetime cap.
  
• Professional degrees (medical, law): $200,000 lifetime.
  
• Parent PLUS loans: $65,000 per dependent (lifetime), and no access to IBR/PAYE or PSLF.
  

An aggregate lifetime cap was also set around $257,500 for federal student loans. Because of these limits, more private lending will likely be utilized in the future.

Hardship Protections Slashed

• Economic hardship and unemployment deferments have been eliminated for new loans disbursed as of July 1, 2025.
  
• Discretionary forbearance is now capped at 9 months in any 24‑month period, effective July 1, 2025.
  

Streamlining and Bankruptcy Relief

• In a notable shift, new Department of Education (DOE) guidelines, in partnership with the Department of Justice (DOJ), have streamlined the process for federal student loan borrowers to seek discharge in bankruptcy. This shift is a major change for federal student loans.
• While the process has been simplified, borrowers must still demonstrate “undue hardship” to the court. Prior to the new guidelines, the success rate for student loan discharges in bankruptcy was extremely low (around 0.1%). However, recent data suggests a substantial increase of court decisions resulting in full or partial discharge based on government recommendations.
  

Implications & What Current Borrowers Should Do

• SAVE enrollees: Evaluate switching to IBR (Income Based Repayment) or other approved plan before payments resume. You can use the Loan Simulator to compare cost trajectories. If pursuing Public Service Loan Forgiveness (PSLF), you must leave SAVE and enroll in a qualifying plan like IBR or, later, RAP.
  
• Prospective graduate or professional students: With the new borrowing caps, you may need to explore private loans, income-sharing agreements, or workforce grants to cover gap costs. Note, private loans usually lack federal protections like forgiveness or flexible repayment.
  
• Current borrowers: If enrolled in a repealed IDR plan, ensure you’re switching before the July 1, 2028 compliance deadline.
  
• Those facing severe hardship: Consider consulting counsel about the possibility of student loan bankruptcy discharge, though it remains complex and procedural.
  
• Watch defaults closely: With the resumption of interest and reduction in forbearances, many borrowers might be at elevated risk of default which can come with serious credit and legal consequences.

So, what do you really need to know about the changes in federal student loans?

Borrowers in SAVE likely need to take immediate action. Interest accrual for those in the SAVE plan starts August 1st. Counseling outreach has begun and switching to a compliant plan like IBR is critical. Over the longer term, new loan borrowers (from mid‑2026 on) will face more limited choices, lower caps, and fewer safeguards, making thorough planning essential. If you’d like to discuss your unique situation with a CSLP® advisor like myself, you can schedule time here or feel free to reach out using the contact information below.

Nichole Coyle, CFP®, CSLP®
Managing Partner, Financial Planner
Impact Wealth Management
(234) 529-1083
nichole@impactcfp.com

The views depicted in this material are for information purposes only  and are not necessarily those of Cetera Advisor Networks LLC.  They should not be considered specific advice or recommendations for any individual.