Big changes coming July 1 for student borrowers, including loan repayments

WASHINGTON — A federal student loan system will begin this summer, and critics warn it will likely make loans more high-priced and harder to obtain for borrowers, turning them to private lenders or changing their plans for higher education.

The most essential changes include up-to-date loan limits for graduate and professional students, a restructured repayment system in which up-to-date borrowers will have a choice of only two plans, and the elimination of a key graduate and professional student loan program that allowed for unlimited borrowing.

The regulations – most of which will take effect on July 1 – are the result of an initiative by Republicans in Congress mega tax and spending cutting bill bill that President Donald Trump signed last year.

US Department of Education finalized regulationspublished May 1stthat implement the sweeping changes outlined in the GOP’s “big, beautiful” bill. The department received more than 80,000 public comments before the rule was finalized.

Education Undersecretary Nicholas Kent said the “high-level” reforms focus on “lowering college costs, simplifying student loan repayment, and restoring accountability to the federal student lending system” during an April 30 call with reporters about the up-to-date regulations.

Estimates put the average federal student loan debt balance at $39,547 Education Data Initiative.

As July 1 approaches, let’s take a closer look at some of the biggest changes coming to the federal student loan system:

Elimination Grad PLUS

The Grad PLUS program, which allowed undergraduate and part-time students to borrow up to the full cost of their studies, will soon be eliminated from the package and unavailable to up-to-date borrowers.

(*1*) said Preston Cooper, a senior fellow for higher education policy at the American Enterprise Institute, a right-leaning think tank.

“Current students are subject to new loan limits” – starting in the fall, after July 1, the up-to-date loan limits will only apply to up-to-date students, Cooper said.

New debt limits

The package also sets up-to-date annual and cumulative loan limits for graduate and professional students, as well as parents who take out federal student loans for dependent undergraduate students.

Loans for graduate students will be circumscribed to $20,500 per year, with a total limit of $100,000.

Parent PLUS borrowers will have an annual limit of $20,000 and a combined limit of $65,000 per dependent.

Professional student loans will have an annual limit of $50,000 and a total limit of $200,000.

Programs that fall into the department’s “professional” category and have a larger loan limit include: pharmacy, dentistry, veterinary medicine, chiropractic, law, medicine, optometry, osteopathic medicine, podiatry, theology, and clinical psychology.

The Department explained in A information sheet on the final regulations that “professional” student classifications “do not express a value judgment about the importance of any profession or field” but instead serve a “loan administration function.”

The agency faced enormous opposition groups representing people IN fields that are out of scope departmental definition and will therefore be subject to lower annual and lifetime debt limits.

Incoming repayment options

In another major change, the regulations replace early repayment options with two up-to-date plans – the Repayment Assistance Plan (RAP) and the Tiered Standard Plan – both of which will be launched on July 1.

RAP is an income-driven repayment plan that “waives unpaid interest for borrowers who make timely payments that do not fully cover accrued interest,” according to the department’s report. information sheet.

Balances under the plan will also “decrease with each on-time payment as unpaid interest will be fully waived and the Department will then reduce the principal amount by an amount equal to the borrower’s payment, up to $50,” the agency says.

The Tiered Standard plan offers fixed monthly payments, ranging from 10 to 25 years, depending on the borrower’s outstanding principal balance.

“Much more expensive”

“The effect is that it will become much more expensive for almost everyone, and much more expensive for some people, to repay loans, and the transition will also be difficult for many people,” Michele Zampini, associate vice president for federal policy and advocacy at the Institute for College Access & Success, told States Newsroom.

Zampini, whose organization aims to advance affordability, accountability and equity in higher education, said she believes “there will be many students who will have to turn to the private loan market who would otherwise be able to cover their costs through the (Grad PLUS) program.”

Victoria Jackson, deputy director of higher education policy at the nonprofit advocacy and policy group EdTrust, said that with up-to-date loan limits and “drastic cuts to increase access” in the regulations, “one can really hope that they will be provided through other, cheaper and better forms of financial aid.”

“And what they have just done is create a vacuum that can only really be filled now with private loans, which are more expensive and riskier for students, otherwise students just won’t leave,” Jackson said.

Meanwhile, the Trump administration continues its eradication efforts Department of Educationincluding through a number of interagency arrangements that transfer some of your responsibilities to other departments.

According to the latest agreement, Treasury Department will assume Education’s responsibility for collecting defaulted federal student loans – the first step in a multi-phase process for the Treasury Department to assume the entire approximately $1.7 trillion federal student loan portfolio.

Switching to a up-to-date system

Zampini noted that when it comes to future student loan regulations, she has little confidence in the Department of Education’s “ability to effectively manage the transition without a lot of hiccups in terms of servicing, account tracking, plan enrollment, and the like.”

EdTrust’s Jackson said that “by weakening the federal financial aid system, I believe we weaken our higher education system and make it more difficult for low-income students, students of color and other marginalized students to access higher education.”

She added that “people who complete these degrees tend to have greater financial security in the future — they earn more throughout their lives and, in terms of financial success and opportunity, do better.”

“I think this is part of a plan to weaken our entire higher education system.”