The Big Beautiful Bill Is Now Law, and We Finally Have the Fine Print

Congress passed the One Big Beautiful Bill Act (OB3 for short) on July 3, 2025. This bill brings sweeping changes to the federal student loan system, including new borrowing limits, repayment structures, and program accountability rules.

While we’ve had the big picture changes from the OB3 for nearly a year, a lot of specific program rules needed to be written by the Department of Education in order to actually implement the changes and answer the many questions which were created by the bill. We finally have that text, at least how it pertains to borrowing and repayment changes. Below is a comprehensive breakdown of the student loan provisions within the bill.

Key Takeaways

• Borrowers receiving any federal loan disbursement after June 30, 2026 — including consolidation disbursements — will lose access to existing IDR plans and instead move into the new repayment framework (RAP).
• Borrowers who consolidate loans with existing PSLF credit will retain a weighted average of prior PSLF qualifying payment credit.
• “Legacy borrowers” with no loans post-6/30/26 disbursements will retain access to both Original IBR and New IBR plans. Earlier proposed rules suggested borrowers might permanently lose IBR access after 7/1/2028 unless already enrolled. The Final Rules appear to remove that restriction.
• PAYE is officially being phased out by 7/1/2028 under a highly restrictive transition structure. All borrowers will ultimately be removed from PAYE by 7/1/2028.
• Legacy borrowers may utilize RAP and later transition back into IBR if desired.
• Payments made under RAP will count toward PSLF but will NOT count toward 20/25-year IBR forgiveness timelines after switching into IBR.

Loan Limits

Graduate and Professional Loan Reforms

• Ends eligibility for Grad PLUS Loans starting July 1, 2026
• New annual borrowing caps for Federal Direct Unsubsidized Loans:
  • $20,500 per academic year for graduate students
  • $50,000 per academic year for professional students
• Aggregate limits for total loan amounts:
  • $200,000 lifetime cap for professional students
  • $100,000 cap for graduate students who never enrolled in a professional program
  • Students with both degrees are capped at $200,000 total, but their prior graduate loan usage reduces what they can borrow as a professional student

Parent Loan Limits (Parent PLUS)

• Beginning July 1, 2026:
  • Annual limit per dependent student: $20,000
  • Lifetime limit per dependent student: $65,000
  • Applies across all parents (not per individual borrower)

Universal Lifetime Borrowing Cap

• All students are subject to a $257,500 lifetime loan cap (excluding Parent PLUS)
• This includes all loans across undergrad, graduate, and professional education
• Repaid, forgiven, or discharged loans still count toward this cap

Additional Loan Limit Rules

• Part-time students: Loan limits are pro-rated based on enrollment level
• Schools may set additional program-level caps on loans per year, as long as those caps are applied uniformly
• Grandfathering: Students enrolled as of June 30, 2026, can retain current borrowing limits (including graduate plus loans) for up to 3 years, or until their “expected time to credential”, whichever is shorter.

Loan Repayment Options and Changes

New Repayment Plan Structure (Effective July 1, 2026)
Borrowers with loans issued on or after this date must choose one of the following:

Standard Repayment Plan – Fixed monthly payments based on total loan debt:

• This applies to all loans uniformly
• Prepayment without penalty is allowed

Repayment Assistance Plan (RAP)
A new income-driven repayment (IDR) option for loans issued on or after July 1, 2026.

RAP Key Features:

• Monthly payment is income-based using a tiered formula (see below)
• Forgiveness after 360 qualifying monthly payments
• Borrowers can switch between RAP and Standard Plan at any time.
• Legacy borrowers who qualify for IBR may switch from RAP to IBR at any time. Note that payments made under RAP will count toward PSLF but will NOT count towards 20/25-year IBR forgiveness.
• Borrowers with “excepted” loans (e.g., Parent PLUS, certain consolidation loans) are ineligible for RAP and must use Standard Repayment
• Married borrowers will be allowed to omit spousal income if they choose to utilize “Married Filing Separate” status on the tax returns.

RAP Payment Formula
Applicable Monthly Payment is calculated as:
A base percentage of the borrower’s adjusted gross income (AGI):

1. 1. Income under $10,000 = $10 monthly$10,001–$20,000 = 1% of AGI
   $20,001–$30,000 = 2% of AGI
   … and increases by 1% per $10,000 income, capping at 10% for income over $100,000.
2. 2. Then subtract $50 per dependent
3. 3. If the result is < $10, borrower pays $10
4. 4. If borrower fails to provide income data, payment is calculated as a 10-year standard amortization on their balance until documentation is submitted

Forgiveness Under RAP
Borrowers who make 360 qualifying payments (30 years) will have any remaining balance forgiven. Qualifying payments include:

• RAP payments
• Payments made under Standard Repayment equal to or greater than RAP amount
• Payments made under other plans (e.g., IBR or ICR) before RAP enrollment
• Deferment months due to military service or economic hardship
• Certain forbearance periods prior to the effective date
• For any period that the RAP payment amount does not fully cover the interest accrued that month, remaining interested will be automatically discharged. This is a tax free benefit with no strings attached.

Consolidation Loans
Consolidation loans disbursed on or after July 1, 2026:

• Can only be repaid under RAP or Standard Repayment
• May not be repaid using older IDR plans
• Consolidation loans that paid off Parent PLUS (including double consolidation loans) are excluded from RAP eligibility and must use Standard Repayment

Modifications to Existing IBR Plan(s) and Impacts to Current Borrowers in Repayment
The current Income-Based Repayment plan (including “New IBR” from 2014) remains available for borrowers who only took loans before July 1, 2026.

With RAP now being referred to as an IBR plan, and two versions of IBR already on the books, this language gets very confusing. We’ll refer to the existing plans as “Legacy IBR”.

• Eligibility no longer requires financial hardship
• Original IBR: Monthly payment is 15% of discretionary income, with 25-year taxable forgiveness
• “New” IBR modified in 2014: For those who only have Federal Direct loans disbursed between 7/1/2014 and 6/30/2026, monthly payment is 10% of discretionary income, with 20 year taxable forgiveness.
  • Discretionary income = AGI – 150% of poverty guideline

If you are currently repaying loans using ICR or PAYE, you must transition to RAP, Legacy IBR, or the New Standard plan by 7/1/2028.

If you are currently repaying loans using SAVE, you must transition to RAP, Legacy IBR, or the New Standard plan by 9/30/2026.

Special Repayment Provisions for Existing Parent Plus Loans
The final version of the bill still imposes special restrictions on Parent Plus loans (old and new), but this is less strict than previous proposals. Below are important details for Parent Plus loans (PPL’s) distributed before 7/1/26.

Borrowers with existing PPL’s will need to consolidate to preserve access to IDR and PSLF.

• Consolidation must be completed by June 30th, 2026.
• Enroll in an IDR plan
  • ICR for single consolidation (repaid parent plus loan)
  • IBR plan for double consolidation (removes parent plus loan)

Borrowers can then enter the amended IBR plan, which continues under the new law for those with loans issued before the 2026 cutoff. Those who fail to consolidate before 7/1/2026 will forfeit access to IDR plans.

Important note: For those borrowing Parent Plus Loans before and after 7/1/2026, any new PPL’s taken out after the cutoff will exclude ALL loans in the portfolio from accessing IDR plans.

Public Service Loan Forgiveness (PSLF)

• Earlier proposals aimed to restrict Medical and Dental residents from obtaining PSLF credit during residency. This language has been struck from the final bill.
• Payment made under RAP, or any other IDR plan, will count towards PSLF. Switching between plans will not reset the PSLF clock.

IMPORTANT NOTE FOR THESE NEXT TWO SECTIONS:

Everything above was covered in the “Final Rules” document published by the Rise Committee after much debate. The provisions below, however, are being handled by a separate committee. They have not yet published their final rules. So, everything below is taken directly from the OB3 text and could still change once the final rules are published.

Accountability for Schools

1. Ineligibility for Low-Earning Programs

Institutions cannot use federal funds for programs that Have median graduate earnings below that of a typical working adult with only a high school diploma or bachelor’s degree (depending on level).

• Earnings are tracked 4 years post-completion, for at least 2 of the prior 3 years
• Includes programs at the undergrad, grad, and professional level
• Applies state- or nationwide earnings comparisons, depending on where students reside

2. Small Program Rule

• If <30 completers in a cohort: DOE may combine additional years or similar programs to reach a minimum sample size

3. Appeals Process

• Institutions can appeal earnings determinations before funding is pulled
• Students must be notified if a program fails in one year and is at risk of losing eligibility

4. Regaining Eligibility

• Institutions can apply to reinstate programs after a 2-year ineligibility period

Other Notable Provisions

1. Borrower Defense to Repayment

Delays implementation of 2022 rules until at least July 1, 2035, and reverts to 2020 rules, which had:

• Higher burden of proof
• Individual, not group-based, claims
• Limited scope of eligible misconduct

2. Closed School Discharges

• Delays 2022 rules and reinstates pre-2022 standards through July 1, 2035
  • Removes automatic discharge
• Requires proactive borrower applications

3. Limitations on Executive/Regulatory Action

• Department of Education cannot issue regulations or executive actions increasing the cost of loan programs by more than $100 million under Federal Credit Reform Act calculations
• Intended to curb unilateral expansion of forgiveness or IDR benefits without Congressional approval

4. Loan Rehabilitation, Deferment, and Forbearance

New loans issued post-July 1, 2026, will:

• • Be ineligible for some legacy rehab programs
  • Must be managed via RAP or standard repayment plans
• Existing rehabilitation pathways preserved for loans issued before the cutoff date
• Deferments and forbearances will not be allowed for loans issued on or after July 1, 2027

What Does All of This Mean for You?

If you’ve made it this far, you’ve probably realized one thing: these changes are significant. The One Big Beautiful Bill Act doesn’t just tweak a few student loan rules; it fundamentally reshapes how future borrowers will borrow, repay, and pursue forgiveness. Whether you’re currently in school, preparing to enroll, or actively repaying loans, there is a very good chance these changes will affect your financial strategy in some way.

While we’ve done our best to break down hundreds of pages of legislative and regulatory language into a format that’s easier to understand, no article can fully answer the most important question: How will these changes impact me personally? And the answer depends on many different factors.

That’s where we can step in. We here at Student Loan Professor specialize in helping borrowers navigate complex decisions and build strategies tailored to their unique circumstances. If you’re wondering whether you should consolidate, preserve PSLF eligibility, or simply understand your options, we encourage you to schedule a consultation. The rules have changed, but with the right guidance, you can make informed decisions and position yourself for success in this new student loan landscape.