What the One Big Beautiful Bill Means for Your Student Loans in 2025

Confused about the new student loan rules? You’re not alone. The One Big Beautiful Bill Act was signed into law on July 4, 2025, and it brings some of the most sweeping student loan changes of 2025. From repayment plans to forgiveness options and future borrowing limits, the landscape is shifting fast. This article breaks it all down in plain English: what’s changing, when it’s happening, and what it means for you.

Update as of July 2025: Some repayment and forgiveness provisions under the SAVE, PAYE, and ICR plans are currently paused due to court orders. Details in this article reflect the law as passed, but ongoing legal challenges may delay or limit implementation.

SAVE Plan Interest Restart: What You Need to Know

Starting August 1, 2025, nearly 8 million borrowers enrolled in the SAVE plan will begin to accrue interest again, even though monthly payments are still paused.

• This is happening because the courts blocked key parts of the SAVE plan.
• The Education Department says it no longer has the legal authority to keep SAVE borrowers at 0% interest.
• Monthly payments are still paused for now, but unpaid interest will start piling up.

What can you do?

You can switch to another IDR plan, such as IBR if you qualify and want to start earning forgiveness credit again.

Note: The Department is contacting SAVE borrowers and recommending IBR for those who qualify. But there’s a backlog of over 1.5 million applications.

How IBR and ICR Borrowers Are Affected

Borrowers currently on income-driven repayment plans, including versions of Income-Based Repayment (IBR) and Income Contingent Repayment (ICR), are seeing major changes under the new law. Here’s what that looks like in practical terms:

Transition for Existing IBR and ICR Borrowers

Borrowers whose loans are in repayment under the old ICR plan (authorized under section 455(e)) or in forbearance linked to it will need to move to a new repayment plan. This transition applies to what’s called “covered income contingent loans.”

• Deadline to Choose: You’ll need to pick a new plan before July 1, 2028.
• Available Options: The Repayment Assistance Plan (RAP), the income-based repayment plan under section 493C, or any other plan authorized under section 455(d)(1).
• If No Plan is Selected: The Department will automatically assign you to RAP if eligible, or to the 493C IBR plan if not.
• Start Date: Repayment under your new plan officially begins July 1, 2028.

What Happens to Forgiveness Credit?

Forgiveness credit counting has been completed for many borrowers — but applying that credit toward actual loan cancellation is a different story. Federal court injunctions that began in July 2024, and were upheld and expanded in February and April 2025, paused forgiveness under most IDR plans, including SAVE, PAYE, and ICR. While IBR forgiveness is still authorized by law, but the Department of Education has temporarily halted discharges, citing system issues. So while your progress toward forgiveness may be intact on paper, actual forgiveness is on pause for now.

Changes for New Loans (Starting July 1, 2026)

Loans first disbursed on or after July 1, 2026, are not eligible for the old IBR or ICR plans. Instead, only two options will be offered:

• A Standard Repayment Plan (10–25 years, based on principal)
• The new Repayment Assistance Plan (RAP)

If no plan is selected, the default will be the Standard plan.

Also, any Direct Consolidation Loans made after July 1, 2026, can only be repaid under Standard or RAP. Some consolidated loans will be classified as “excepted loans” — these include Parent PLUS loans and consolidation loans that paid off such loans — and will be restricted to the Standard plan.

Bottom line:

If you’re on the SAVE Plan, interest resumes August 1, 2025. If you’re aiming for PSLF or forgiveness under any IDR plan, you may want to switch to a plan like IBR now to keep earning credit. Borrowers in ICR, PAYE, or SAVE after July 1, 2026, must transition to a new repayment plan, such as IBR, by July 1, 2028. You must select a new plan by this deadline or be auto-assigned one. Regardless of your plan, remember to recertify your income annually — or opt in to automatic tax-based verification so you don’t miss a deadline.

Parent PLUS Loan Borrowers: What’s Changing

Big changes are coming for Parent PLUS Loans, particularly concerning their repayment options for new loans.

For loans first disbursed on or after July 1, 2026, Federal Direct PLUS Loans made on behalf of a dependent student (Parent PLUS Loans) are explicitly classified as “excepted loans”. Similarly, Federal Direct Consolidation Loans whose proceeds were used to discharge liability on an “excepted PLUS loan” or a prior “excepted consolidation loan” are also considered “excepted loans” .

The most significant change is that borrowers who receive these “excepted loans” made on or after July 1, 2026, will be required to repay each such excepted loan only under the Standard Repayment Plan. This means that these new Parent PLUS Loans (and consolidation loans that paid them off) will not be eligible for any income-driven repayment plan, including the new RAP or the IBR plan.

Separate from these restrictions on new loans, the ICR Plan, which has historically been the primary IDR option for Parent PLUS borrowers after utilizing the “double consolidation” strategy, is being phased out for existing borrowers by July 1, 2028. Borrowers currently on the ICR plan, or other legacy IDR plans like PAYE or SAVE, will need to transition to a new repayment plan, such as IBR, by this date. If no plan is selected by July 1, 2028, these borrowers will be automatically moved to RAP.

New Repayment Assistance Plan (RAP)

The Repayment Assistance Plan (RAP), introduced under section 455(q) of the Higher Education Act of 1965, is a new income-based repayment option set to roll out starting July 1, 2026. It becomes one of two repayment plans available for new loans, alongside a standard repayment option.

When RAP Becomes Available

• RAP officially becomes available on July 1, 2026.
• Borrowers with “covered income contingent loans” (such as those on the old ICR plan) will begin repayment under their selected income-based plan—including RAP, 493C IBR, or another eligible plan—starting July 1, 2028, unless they opt in earlier.
• The Secretary of Education is required to offer RAP for all loans (not classified as “excepted loans”) made on or after July 1, 2026, including for borrowers who also have older loans.
• If a borrower with a new loan made on or after July 1, 2026, doesn’t select a plan, they’ll be placed on the Standard Repayment Plan by default.
• For older income-contingent loans, borrowers who don’t select a plan by July 1, 2028, will be enrolled into RAP (if eligible) or section 493C’s IBR plan.
• Borrowers can switch between RAP and the Standard Plan at any time.

Who Can Use RAP

• RAP is not available to repay “excepted loans.” This includes Federal Direct PLUS Loans made on behalf of a dependent student, or Federal Direct Consolidation Loans if their proceeds were used to pay off an excepted PLUS loan or another excepted consolidation loan.
• Borrowers with excepted loans must repay them separately from any loans eligible for RAP.
• For loans made on or after July 1, 2026, Federal Direct Consolidation Loans can only be repaid under either RAP or the Standard Plan

How RAP Payments Are Calculated

Payments under RAP are based on your Adjusted Gross Income (AGI) and follow a tiered structure:

• Not more than $10,000: $120
• $10,001–$20,000: 1% of AGI
• $20,001–$30,000: 2% of AGI
• $30,001–$40,000: 3% of AGI
• $40,001–$50,000: 4% of AGI
• $50,001–$60,000: 5% of AGI
• $60,001–$70,000: 6% of AGI
• $70,001–$80,000: 7% of AGI
• $80,001–$90,000: 8% of AGI
• $90,001–$100,000: 9% of AGI
• Over $100,000: 10% of AGI

Borrowers can deduct $50 per dependent from their AGI when calculating payments. There’s a minimum payment of $10. If the total loan balance is less than the calculated monthly amount, the payment will be capped at the outstanding balance.

Loan Forgiveness Under RAP

After 360 qualifying monthly payments (30 years), any remaining principal and interest will be cancelled—provided the borrower’s most recent payment was under RAP. Payments that count include:

• On-time payments made under RAP
• On-time payments under the Standard Plan (as long as they meet or exceed what RAP would have required)
• Payments made under an Income-Contingent Repayment (ICR) plan—if the payment was at least what ICR required (this only applies to payments made before July 1, 2028)
• Payments under the original IBR plan (section 493C)
• Certain periods of deferment or forbearance, as defined by the Department

Assistance for Borrowers Struggling with Payments

• If a RAP payment doesn’t fully cover accrued interest, the unpaid interest won’t be added to the balance.
• If a RAP payment reduces the principal by less than $50, the Department will reduce the balance by an amount equal to: the lesser of $50 or the total amount paid that month, minus the amount of that payment applied to principal. This means the total principal reduction could be less than $50, depending on how much of the payment went toward interest or fees.

Verification and Documentation

• Borrowers may need to submit documentation if their AGI isn’t available or doesn’t reflect their current income.
• The Department of Education will set up procedures for annual income recertification, including options for automatic tax-based verification.

What’s Being Phased Out

The introduction of RAP coincides with the wind-down of older repayment plans. For loans made after July 1, 2026, options like ICR and various Standard Repayment Plans will no longer apply. For these new loans, borrowers will choose between RAP and the Standard Plan.

Loan Forgiveness and Relief Provisions

• Discharges for Death or Disability: Beginning after December 31, 2025, student loan amounts discharged due to a borrower’s death or total and permanent disability will not be counted as gross income for tax purposes.
• Loan Rehabilitation Expanded: Borrowers will now be allowed to rehabilitate their FFEL, Direct, and Perkins Loans up to two times, doubling the previous limit. This takes effect on July 1, 2027. For loans made on or after that date, the minimum required monthly payment for a rehabilitated loan will be $10.
• Delay in Borrower Defense and Closed School Discharge Rule Changes: New rules governing borrower defense to repayment and closed school discharges will not take effect until July 1, 2035. Until then, the Department will revert to the regulations that were in place as of July 1, 2020, for loans made before July 1, 2035.
• Increased Servicing Funding: Congress has appropriated $1 billion to the Department of Education to fund administrative costs related to servicing federal student loans. This funding will remain available until fully spent.

Where We Are Now in the Legislative Process

This table summarizes the steps involved in passing the reconciliation bill and where things now stand:

Want Help Navigating These Changes?

Worried about how this affects your loans and long-term finances?

Chatting with a Certified Financial Planner can help you evaluate how these changes may impact your repayment strategy, retirement planning, and overall financial wellness.

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