What Students and Borrowers Need to Know Now that President Trump’s “One Big Terrible Bill” is Law

By Aissa Canchola Bañez | July 18, 2025

Earlier this month, Congress passed and President Trump signed what we have dubbed the “One Big Terrible Bill” into law. The gargantuan bill will deliver over $4 trillion in tax cuts for billionaires and the largest corporations while making over $300 billion in cuts to critical higher education and financial aid programs that students and families rely on to pay for college and affordably repay their student loans. 

Over the last several months, we have warned policymakers about how the various House and Senate versions of this reconciliation bill would make paying for college even more expensive, push families into more costly and risky private student loans, and spike monthly student loan bills for millions of working families. While students, borrowers, and advocates were able to successfully block several egregious and damaging provisions to the Pell Grant program and the ability of future Secretaries of Education to protect students and borrowers, the new law still makes unprecedented cuts to our federal financial aid system and fundamentally changes the options that millions of student loan borrowers rely on to affordably repay their loans. In the coming months, the U.S. Department of Education (ED) will be tasked with implementing this new law—which will only be made more difficult now that the majority on the Supreme Court has greenlit the Trump Administration’s mass firing of nearly half of all ED staff and Secretary McMahon continues her efforts to try to dismantle the agency. 

We know that students and families with student loan debt are desperately seeking information on what this bill might mean for them. The new law makes massive changes to the student loan system that will make this already complicated system even MORE difficult to navigate. The following blog provides a detailed overview of the major student loan-related aspects of the “One Big Terrible Bill” and shares what students and borrowers need to know. This blog is the first of a series of resources that SBPC will release to help borrowers navigate these changes. Stay tuned!

Here is the TLDR: 

• Graduate PLUS loans are eliminated for new students on July 1, 2026. Current students are permitted to borrow Graduate PLUS loans for up to three years. New loan limits begin on July 1, 2026 for new students. Current students/borrowers are exempt from the new lending limits for up to three years. 
• After July 1, 2026, borrowers with new loans will only have two repayment options—a new standard option and a new Repayment Assistance Plan (RAP) option. Current borrowers with loans taken out before July 1, 2026 will continue to have access to current Income Based Repayment (IBR). Current borrowers with loans taken out before July 1, 2026 can continue to enroll in/remain on their Income-Driven Repayment (IDR) plans but will need to switch to IBR or RAP by July 1, 2028. Current borrowers who take on any new loan after July 1, 2026 (including a consolidation loan) will only be eligible for RAP or the new standard plan.  
• New Parent PLUS loan borrowers with loans taken on after July 1, 2026 will only have access to the new standard repayment plan. Current Parent PLUS borrowers will be able to access IBR if they consolidate their loans before July 1, 2026. Enrolling in ICR after this deadline is the only way a current Parent PLUS borrower can access IBR.  
• Borrowers who have earned debt cancellation under IDR after December 31, 2025 could be hit with a massive tax bill.

The new law eliminates Graduate PLUS loans for future borrowers, gutting a critical financial aid program for students pursuing graduate and professional education.

The law eliminates the Graduate PLUS loan program for all new students on July 1, 2026. The Graduate PLUS loan program allowed eligible graduate and professional students to borrow up to the full cost of attendance for their advanced degree. Crucially, current students enrolled in a graduate or professional program and who borrowed a Grad PLUS loan prior to July 1, 2026 are grandfathered in and permitted to borrow Grad PLUS loans for the remainder of their program or up to three academic years (whichever time period is less). 

It is important to note that while previous iterations of the reconciliation bill would have eliminated the subsidized loan program—which allows for lower-income undergraduate students to borrow up to $23,000 in federal loans that don’t accrue interest while they are enrolled in school—this provision was not included in the final bill signed into law. Eligible students can still borrow subsidized loans to pay for college.

The bill severely limits access to federal student loans for parents, forcing millions into a risky private market. 

The law also sets new caps on the federal loans parents can borrow to pay for their child’s undergraduate education, also known as Parent PLUS loans. Effective July 1, 2026, new parent borrowers will be prohibited from borrowing more than $20,000 per year and $65,000 total per child. Prior to the new law, Parent PLUS loan borrowers could borrow up to the total cost of attendance of their child’s education (as determined by their school) minus any other financial aid they received. Current borrowers who took out a Parent PLUS loan prior to July 1, 2026 will be grandfathered into the previous parameters of the program and can borrow up to the cost of attendance of their child until the end of their currently enrolled program, or up to three years. 

The law also sets new limits on how much students can borrow in Federal Direct Loans after July 1, 2026. Current borrowers enrolled in a program are exempt from the new lending limits until the end of their program, or up to three years. Notably, the bill does not make any changes to the annual or aggregate loan limits for undergraduate students, with the exception of the maximum lifetime borrowing cap listed below.

Elsewhere, the new law also permits institutions to set lower annual loan limits for students and parents, which could leave many students scrambling to finance their degree if they do not have enough aid to meet their cost of attendance. Taken together, these new limits and outright elimination of programs, without investment in necessary financial aid programs to make college more affordable, will force families into expensive, risky private student loans. 

The “One Big Terrible Bill” Act will result in more expensive student loan payments.

The new law drastically upends the current student loan repayment system, reducing the number of affordable repayment options borrowers have at their disposal. 

Here is what borrowers with NEW loans taken on after July 1, 2026, need to know:

• Any borrower with a new loan borrowed after July 1, 2026, including a consolidated loan after this date, will no longer have access to several current plans—including the current standard, graduated, and extended repayment plans and the Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), and Income Contingent Repayment (ICR) plans. Nor will they have access to the current IBR plan. These borrowers will only have two repayment options—a new “standard” plan and a new “Repayment Assistance Plan” or RAP.
• The new standard plan requires borrowers to make payments over the course of a fixed payment term. The duration of the term is based on the borrower’s principal at the time they enter repayment. Borrowers are allowed to pay down their loan balances faster and will not face pre-payment penalties under this plan. The four fixed terms are based on the following loan balance breakdown:

• The RAP plan will be the sole IDR option available to new borrowers. Borrowers enrolled in the RAP plan will be required to pay 1-10 percent of their adjusted gross income, borrowers are required to make a minimum monthly payment of $10, and monthly payments are reduced by $50 per dependent child. Borrowers enrolled in RAP are required to make payments for 30 years before being eligible for cancellation (as opposed to 20-25 years under previous IDR options and as little as 10 years under SAVE). 
• Similar to the SAVE plan, borrowers on the RAP plan will have any unpaid interest not covered by their monthly payment waived.

• The RAP plan is the only repayment plan eligible for Public Service Loan Forgiveness for new borrowers.  
• For married borrowers who file taxes separately, monthly payments under RAP exclude the spouse’s income and any dependents claimed by the spouse. 
• Parent PLUS borrowers who take out loans after July 1, 2026, including consolidation loans, are ineligible for the RAP plan and will only be eligible for the new standard plan. If a borrower has a mix of Parent PLUS loans and other RAP-eligible Direct Loans, borrowers will have the option to repay their loans on separate repayment plans. 

Here is what CURRENT borrowers with loans taken on prior to July 1, 2026 need to know: 

• Borrowers currently enrolled in SAVE, PAYE, and ICR (including Parent PLUS borrowers who consolidated their loans) can remain on these plans until no later than July 1, 2028. After July 1, 2028, these borrowers will be forced out of these plans and into either IBR or the RAP plan (see above for the breakdown of how RAP works). Take note, a current borrower who takes on a new loan or consolidates their existing loans after July 1, 2026 will be treated as a new borrower and will only have access to the plans discussed above.
• Now that the Trump Administration has announced plans to resume interest charges on borrowers enrolled in the SAVE plan, SAVE borrowers may begin feeling pressure to switch into a new plan. Current borrowers (including those on SAVE) can still enroll in other IDR options (for example, PAYE or ICR). However, these borrowers will be moved out of these plans once they sunset after July 1, 2028. 
• Considering the various changes to IDR options, current borrowers may consider moving into IBR, which will not sunset after 2028 and provides cancellation after no more than 25 years. Borrowers should note that IBR is NOT as affordable as PAYE or SAVE and should prepare for higher payments. (See below for more details on IBR.)
• Between July 1, 2026 and July 1, 2028, current borrowers who remain enrolled in SAVE, PAYE, or ICR must select either RAP or IBR; if they do not make a selection by the deadline, the Secretary will automatically move them into the RAP or, if they are ineligible for the RAP, IBR. 
• Current borrowers who take on any NEW loan after July 1, 2026 will lose the ability to remain on SAVE, PAYE, ICR, or access IBR. Borrowers with any new loan taken on after July 1, 2026 will only be able to repay their loans on the new standard or RAP plan. 
• Current Parent PLUS borrowers not enrolled in an IDR option can still access ICR if they consolidate their loans before July 1, 2026. Borrowers should be aware that they will then be moved out of this plan and into IBR after July 1, 2028. Parent PLUS Loan borrowers who either consolidate their loan after July 1, 2026, or take out a new Parent PLUS Loan after July 1, 2026, will be treated as a new borrower and only be able to repay those loans using the new standard repayment plan.
• Prior to the law, borrowers needed to demonstrate a “partial financial hardship” in order to access IBR. This requirement has now been eliminated. This change allows more current borrowers to be eligible for IBR and provides an ongoing pathway for borrowers to access relief after no more than 25 years. 
• The following table summarizes the IBR plan terms. If you are a current borrower who had no student loan balance and took out a loan after 2014, even if you have consolidated since then, you would be eligible for the terms in column A. For all other borrowers—those with older loans and those who had a loan balance when they took out new loans after 2014—you would be eligible for the terms in column B. In order to access IBR, you must have borrowed your loans before July 1, 2026, and cannot consolidate after then.

Borrowers should note that in some instances consolidating your loans can reset your qualifying payments for purposes of PSLF and IBR cancellation. Borrowers should determine whether loan consolidation is the best option for their unique financial circumstances.  

The new law means fewer protections for borrowers if they lose their job or face economic hardship.

Borrowers should be prepared to see higher monthly payments as a result of the “One Big Terrible Bill” Act. Unfortunately, borrowers will also have fewer protections should they experience financial challenges and fall behind. 

Borrowers who take on new loans after July 1, 2027 will no longer be able to access unemployment and economic hardship deferments. These deferments allowed borrowers to pause their payments for up to three years. The law also limits the amount of time a borrower can be in a forbearance to no more than nine months in any two-year period. 

The loss of these protections, in addition to higher payments for most borrowers, could result in higher rates of delinquency and default. 

Current borrowers in default should take quick action to get back on track. Borrowers should consider whether loan rehabilitation or loan consolidation is right for them. After July 1, 2027, the law will allow defaulted borrowers to rehabilitate a defaulted loan twice (as opposed to just once) and requires a minimum monthly payment of $10 over the course of the nine-month rehabilitation period. Defaulted borrowers should note that consolidating a defaulted loan after July 1, 2026 will make borrowers ineligible for the IDR and IBR options available to current borrowers. 

The “One Big Terrible Bill” could leave borrowers who have earned cancellation with a BIG tax bill next year. 

Under the American Rescue Plan Act, signed into law by President Biden in 2021, Congress excluded cancelled student loan debt from being considered income for federal tax purposes until December 31, 2025. Many states took action to ensure that borrowers would not be hit with a state tax bill on cancelled debt for the same time period. The “One Big Terrible Bill” Act failed to extend this federal tax protection for borrowers, with the exception of cancellation due to death or disability. As a result, borrowers reaching cancellation under any IDR plan after January 1, 2026 could now be hit with a massive federal tax bill. Cancellation under Public Service Loan Forgiveness and the school related discharges are already not subject to federal taxes and are unchanged by the “One Big Terrible Bill” Act.

More to come! 

The new law fundamentally changes a student loan repayment system that was already very difficult for students and families to navigate. In the coming months, the U.S. Department of Education will need to begin the work of implementing these massive changes and will be required to do so through the negotiated rulemaking process (which will provide opportunities for borrowers to engage and provide public comment). 

The Student Borrower Protection Center plans to keep borrowers and their families updated every step of the way. Borrowers struggling to access affordable repayment options should reach out to their Members of Congress and request casework assistance. To learn how to navigate the Congressional casework process, use our Protect Borrowers Constituent Casework Tool.

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Aissa Canchola Bañez is the Policy Director at the Student Borrower Protection Center. Previously, Aissa led outreach and engagement efforts for the Office for Students and Young Consumers at the Consumer Financial Protection Bureau and served in senior policy roles in the U.S. House of Representatives and U.S. Senate.