Student-loan borrowers face major changes that start today. Your repayment plan may be phased out.

By Jillian Berman

SAVE plan notices are going out in July, and other repayment plans are being wound down or launched

College students and student-loan borrowers are facing major changes to the way they pay for college and repay their loans.

The way Americans pay for college is about to undergo its biggest transformation in decades.

Starting today, the federal government will put new limits on certain types of borrowing, begin phasing out longstanding repayment programs and launch a new one. These changes stem from the Republican megabill passed last year. In the months since, the Education Department, schools and student-loan servicers have been taking steps to prepare.

With so much happening at once, it's crucial that backend systems, websites and the information that borrowers get from call centers and other sources are aligned and providing clear and actionable information, said Sarah Sattelmeyer, project director at New America, a think tank.

We're about to find out if they're ready.

"The student-loan system is confusing on a good day, and we're moving into a period where there's likely to be heightened confusion," she said.

Here are some of the biggest changes coming.

The phaseout of SAVE

The roughly 7 million student-loan borrowers who were enrolled in SAVE, a Biden-era repayment program, will likely experience some of the most jarring changes over the next few months.

When the Biden administration launched SAVE in 2023, officials touted it as the most affordable repayment plan ever. And indeed, the terms were more generous in many respects than previous plans. But these borrowers have been in limbo for years, because opponents of the plan took the Biden administration to court to stop it. A court decision earlier this year ultimately ended SAVE. But even if the plan had survived the court challenge, its reprieve would have only been temporary: The Republican megabill eliminated SAVE starting in 2028.

Starting July 1, borrowers enrolled in SAVE will begin receiving notices telling them that they have 90 days to switch plans or they'll be automatically put into a standard repayment plan with a monthly payment that's based on a 10-year amortization schedule.

These notices will be staggered, meaning that not all SAVE borrowers will receive one on July 1.

"Some borrowers won't get the notifications until mid-July, August, sometime like that," said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, a trade group. Each borrower will have 90 days from whenever they receive the notice to make a change.

Servicers and the government are staggering the notices because "we're trying to make sure that we're not having 7-plus million people reaching out all at once," he said.

Since the change is relatively unprecedented, servicers don't know what kind of staffing levels they'll need to respond to borrowers' calls, Buchanan said.

"It's difficult to project how people are going to react. We really don't know," he said. "That's sort of a challenge in the moment. We're trying to take steps like that staggered notice to try to mitigate that and make sure that folks are available."

Borrowers have some choices about what plan to switch to. They can choose a standard, mortgage-style repayment plan that runs from 10 to 25 years. They can also choose a plan that calculates payments as a share of a borrower's income.

Several such income-driven plans are still available, but after 2028, borrowers will only have access to two: income-based repayment and the Repayment Assistance Program.

Betsy Mayotte, the president of the Institute for Student Loan Advisors, says borrowers should consider their ultimate goal when deciding what payment plan makes the most sense.

"Everyone is so caught up in, what's the lowest payment I can get," she said. What borrowers should be focused on instead, if they can afford it, is paying the least amount over time, she said.

"For some people that means pursuing forgiveness. For other people that means paying as aggressively as possible," Mayotte said.

Axing old repayment plans and launching new ones

This month is the start of a period of transition for the repayment system.

Right now, borrowers who took out loans before July 1 of this year have access to a suite of income-driven repayment plans. But after 2028, they will no longer be able to enroll in some of the plans currently available, including Pay as You Earn and Income Contingent Repayment.

After 2028, these borrowers will have access to a standard plan where they would make mortgage-style payments with terms from 10 to 25 years; a decades-old income-driven plan called income-based repayment, or IBR; and a new income-driven repayment plan called the Repayment Assistance Plan, or RAP.

Borrowers who take on loans starting July 1 of this year will only have access to the standard plan, IBR or RAP.

RAP, the new plan created by the Republican megabill, is similar in some ways to previous income-driven plans, but it has a few key differences, including:

- Minimum monthly payment: Under other versions of income-driven repayment, borrowers with low incomes could pay as little as $0 a month and stay current on their loans. RAP has a minimum monthly payment of $10.

- Longer forgiveness timeline: Borrowers using RAP can have their loans canceled after 30 years of payments. In other versions of income-driven repayment, borrowers could have their loans forgiven after 20 or 25 years.

- Sliding scale for determining payments: In other income-driven plans, borrowers pay a set share of their income regardless of how much money they make. Under RAP, the share of income a borrower pays goes up based on how much money they earn.

- Covering unpaid interest payments: For borrowers who make on-time monthly payments that are too low to hit the principal loan balance, the government will waive the unpaid interest. In addition, those borrowers will receive a matching principal payment of up to $50.

- Payments must be on time to receive benefits: If a borrower is even one day late making a monthly RAP payment, it doesn't count toward the number of payments needed for forgiveness. The borrower also loses out on the interest subsidy for that month.

A bigger discount for borrowers with auto-pay

For years, borrowers who have allowed their servicer to automatically debit their student-loan payment have received a 0.25-percentage-point discount on their loans. Starting July 1, the Education Department is knocking 1 percentage point off these borrowers' loans for the next two years.

Education Department officials framed the new policy as a way to incentivize and reward borrowers who make regular on-time payments and to improve the overall health of the student-loan portfolio. Roughly 9 million borrowers are currently in default on their student loans, and many more are severely behind.

Borrowers who want to take advantage of the discount need to be enrolled in automatic payments by Sept. 30 of this year. Borrowers who are already signed up for auto-pay will automatically be eligible.

Big changes for parents

Parents who take on federal loans to pay for their kids' schooling will face changes at both the borrowing and repayment stages of the process.

Starting July 1, parents will be able to borrow up to $20,000 per year per student and a maximum of $65,000 per student. Previously, parents who borrowed through the federal loan program could borrow up to a school's cost of attendance.

Parents who are already repaying loans will lose access to income-driven repayment plans. That means parents will have few relief valves to make the payments manageable. Parents who previously took on those loans had the opportunity to consolidate them to maintain access to these repayment plans, but it's likely many didn't meet that deadline. Advocates have expressed concern that those parents will soon begin to struggle, driving up already high delinquency and default rates.

People on all sides of the political spectrum have long had concerns about the Parent PLUS program because it can saddle parents with unmanageable debt that follows them into old age. The idea behind capping the loans is in part to push schools to rely on them less as a way to enroll students from families who may struggle to afford their cost.

But advocates worry that capping the loans could cut off access to college for low-income students. In addition, they note that now, parents will still have access to the debt, but thanks to the changes to repayment, they won't have much of a safety valve if it becomes unmanageable.

Limits for graduate students

Students attending graduate school will also face the strictest loan limits in decades.

The Education Department had initially planned to limit borrowing for students in 11 programs they defined as professional, like medicine and dentistry, to $50,000 a year and a total of $200,000. Those borrowing for other graduate programs were slated to face an annual limit of $20,500 and an aggregate limit of $100,000.

That dichotomy proved controversial because it left certain programs, like graduate-level training for nurses and physician assistants, out of the group of professions eligible for the higher limits. Even some congressional Republicans objected to leaving nurses out. Associations representing nurses and other professions subject to the lower limit challenged the agency's definition of professional program.

For now, a court has temporarily blocked the department from moving forward with the part of the rule that differentiates loan limits between different professions. In response, the Education Department expanded the list of sectors where students qualify for the higher loan limit while the litigation makes its way through the court system.

(MORE TO FOLLOW) Dow Jones Newswires

07-01-26 0700ET