The One Big Beautiful Bill Act introduces stricter rules for student loan borrowers, particularly affecting those who borrow federal loans after July 1.
Under the new legislation, these borrowers will transition from 'legacy borrowers' to 'new borrowers,' losing access to several repayment plans, including the Income-Based Repayment plan (IBR), which offers potential loan forgiveness after 20 years. Instead, they will have only two repayment options: the Repayment Assistance Plan (RAP) and the Tiered Standard Plan.
The RAP requires payments between 1% to 10% of earnings and leads to forgiveness after 30 years, while the Tiered Standard Plan divides debt into fixed payments over various time frames. Parent borrowers face even more limited options, as they will only have access to the Tiered Standard Plan and will no longer qualify for Public Service Loan Forgiveness.
Additionally, the act phases out certain relief options for borrowers facing unemployment or economic hardship, making it harder for new borrowers to pause payments during tough times. Experts advise families to carefully consider their borrowing strategies to avoid losing favorable repayment options and to reassess their financial plans in light of these changes.
Consolidating loans after July 1 will also be treated as taking out a new loan, further complicating the repayment landscape