Millions of Americans with federal student loans are facing steep changes after the signing of the One Big Beautiful Bill Act by President Donald Trump in July 2025. This sweeping legislation eliminates all existing income-driven repayment (IDR) plans, replacing them with just two simplified options. While marketed as a reform, the law will lead to higher monthly payments for many borrowers and reduce safety nets that once helped struggling students.
According to the Student Borrower Protection Center (SBPC), typical college graduates may see an increase of up to $2,929 per year, while borrowers with some college but no degree could face hikes of around $1,761 annually. The timing is especially critical, as over 5.8 million borrowers—roughly one-third of all federal loan holders—are already behind on payments.
What Is the One Big Beautiful Bill Act?
The new legislation aims to streamline the student loan system by replacing current IDR plans—such as SAVE, PAYE, REPAYE, IBR, and ICR—with just two repayment choices:
- Repayment Assistance Plan (RAP):
- Payments are based on 1% to 10% of a borrower’s income, with a minimum of $10/month.
- Loan forgiveness is available after 30 years of qualifying payments.
- Limited deferment options for hardship or unemployment.
- Standard Repayment Plan:
- Fixed monthly payments lasting 10 to 25 years, depending on the total loan amount.
- No income-based features or loan forgiveness.
All borrowers currently enrolled in existing plans will need to switch to one of these two by July 1, 2028, or be automatically reassigned.
Higher Costs for Most Borrowers
The financial burden is expected to rise significantly under the new system. As per SBPC estimates:
| Borrower Type | Annual Payment Increase |
|---|---|
| Degree-holding individual | $2,929 |
| Some college, no degree | $1,761 |
| Family of four (head with a degree) | $2,808 |
These increases will be especially harsh for borrowers who previously qualified for $0 payments under the SAVE plan due to low income. Many families will need to adjust their budgets dramatically to cope with the higher repayment obligations.
New Federal Loan Caps Limit Future Borrowing
Another key feature of the law is the implementation of strict lifetime loan limits:
| Loan Category | Lifetime Limit |
|---|---|
| Graduate Students | $100,000 |
| Medical/Law Students | $200,000 |
| Parent PLUS Loans | $65,000 per student |
Additionally, the Graduate PLUS Loan Program will be phased out, and Pell Grant eligibility will become more restrictive starting in 2026. These limits could drive more students toward private loans, which lack the federal protections of forgiveness, deferment, and income-based repayment.
More Borrowers Expected to Default
Borrower protections are also being rolled back under the new law. Notable changes include:
- Only two short-term forbearances allowed over the life of a loan.
- Interest resumes on paused SAVE-plan loans starting August 1, 2025, impacting around 7.7 million borrowers.
- Loan forgiveness under RAP requires 30 years of consistent payments.
- Borrowers are limited to two loan rehabilitations after default.
Experts forecast that 1.8 million borrowers could default by mid-2025, raising concerns about wage garnishment, tax refund seizures, and benefit reductions, as federal collection powers are fully reinstated.
Private Loans: A Risky Alternative
As federal borrowing limits tighten, many students may look to private lenders to fill the financial gap. But experts caution that private student loans often come with higher interest rates, fewer repayment options, and no access to forgiveness programs like Public Service Loan Forgiveness (PSLF).
While private loans can help bridge tuition costs, they pose greater financial risks, especially for students without strong credit or co-signers. Borrowers are encouraged to compare interest rates carefully and consider the lack of government protections before choosing private lenders.
What Borrowers Should Do Now
With sweeping changes on the horizon, experts recommend that borrowers:
- Use the Department of Education’s loan simulator to understand how their payments may change.
- Reassess their loan plans before the July 1, 2028 deadline.
- Contact loan servicers to get help transitioning into the new repayment system.
- Explore forbearance or loan rehabilitation options early, if at risk of delinquency or default.
Staying proactive can help borrowers minimize damage from the new structure and avoid being caught off guard by higher bills and reduced support.
