5 Major Student Loan Changes Happening in July -- Here's Everything You Need To Know
A major reset to America’s federal student loans is happening, and it’s not a subtle one. As of July 1, millions of borrowers could see their monthly budgets shift in ways they haven’t planned for, all thanks to new repayment options, the end of long-running forbearance protections and tighter rules around forgiveness programs.
Specifically, the Department of Education is rolling out several changes in July that will impact repayment plans, default collections and Public Service Loan Forgiveness eligibility.
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Here’s what to prepare for if you’re currently saddled with student loans.
A New Repayment Plan
Likely the biggest structural change to the federal student loan system is the launch of a new income-driven repayment option called the Repayment Assistance Plan. For new federal student loan borrowers after July 1, RAP is expected to become the main income-driven option.
How it works: Instead of a flat payment, monthly bills would be tied to income (generally between 1% and 10%, depending on earnings). There are also per-child deductions and partial interest waivers designed to keep balances from exploding when payments are low.
While that all sounds helpful -- especially for early-career borrowers with unreliable incomes -- there’s a tradeoff. Depending on your income path, total repayment over time could end up higher than under previous income-driven plans. Basically, lower monthly bills don’t always mean a lower lifetime cost.
SAVE Changes
If you were part of the Biden-era Saving on a Valuable Education plan, the pause you were on is about to, well, unpause.
A staggering millions of borrowers have been in forbearance while lawsuits while the legality of SAVE has been challenged in the court system. That legal uncertainty has now been resolved and borrowers will begin transitioning out as of July 1. As a result, loan servicers are expected to notify borrowers in batches, giving them a 90-day window to choose a new repayment plan. If no action is taken, borrowers will be moved into a standard repayment structure by default, which could mean higher monthly payments than expected.
Default Collections Have Returned
On top of all that, collections on defaulted federal loans are set to restart.
Roughly 8.8 million borrowers are currently in default, meaning they haven’t made a payment in over 270 days. After years of pandemic-era protections and policy pauses, the Department of Education is moving to resume enforcement actions.
That can include things like the withholding of certain federal benefits, as well as wage garnishment. For borrowers in this group, waiting it out can no longer be a strategy.
PSLF Rules Are Getting Tighter
Public Service Loan Forgiveness (PSLF) isn’t quite going away but eligibility may get narrower.
The Department of Education can now exclude certain employers from PSLF eligibility if they’re deemed to engage in activities that are considered illegal under federal standards. That could impact how some nonprofit and public-sector jobs qualify moving forward, and it’s already creating legal challenges from advocacy groups.
Lower Interest for Autopay Users
Not all the changes are painful for those who owe. Borrowers who enroll in autopay can get a temporary 1% interest rate reduction through 2028, with slightly smaller reductions for those who are already enrolled. This is one of the simplest ways to reduce long-term costs without changing repayment plans.
The Bottom Line
It’s probably a mistake to view July as a student loan update – this is more like a total reset across repayment, collections and forgiveness. For borrowers, this means the status quo you’ve lived with (or even ignored) doesn't exist anymore.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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