Federal Student Loan Overhaul Set for July 1, 2026, Ending Grad PLUS for New Borrowers

A sweeping overhaul of the federal student loan system, enacted through the budget reconciliation law signed by President Donald Trump on July 4, 2025, is scheduled to take effect on July 1, 2026. Colleges, financial aid offices, and borrowers are preparing for changes that will reshape how graduate and professional students finance their education and how millions of borrowers repay their debt.

Grad PLUS Ends for New Borrowers

The most consequential change is the elimination of the Grad PLUS loan program for new borrowers. Beginning July 1, 2026, graduate and professional students who first borrow after that date will no longer be able to take out unlimited federal loans to cover the gap between their financial aid and the full cost of attendance. Students who already have Grad PLUS loans will be able to keep borrowing under the existing rules for a transition period.

In place of Grad PLUS, the law sets fixed annual and lifetime borrowing caps. Graduate students may borrow up to $20,500 per year and $100,000 in total federal loans. Professional students, such as those in medicine, law, and pharmacy, may borrow up to $50,000 per year and $200,000 in total. Those limits apply regardless of the program's price, which could leave some students in expensive programs needing private loans or other sources of funding.

New Limits on Parent Borrowing

Parents who borrow through the federal Parent PLUS program will also face new restrictions. Under the law, parents may borrow up to $20,000 per year for each dependent student, with a lifetime limit of $65,000 per student. The change is expected to affect families at private colleges and universities, where tuition and fees are highest and parent borrowing has historically been common.

A New Repayment Plan Arrives

The same law phases out several income-driven repayment options and introduces the Repayment Assistance Plan, known as RAP. The plan is scheduled to become available on July 1, 2026. Borrowers who take out new federal loans after that date will be limited to the standard repayment plan or RAP. The Education Department has also begun winding down the SAVE plan, which was created under the previous administration and has been the subject of extensive litigation. Borrowers enrolled in SAVE are expected to be moved to other plans, and the department has told borrowers to watch for notices about their options.

Workforce Pell Expands Short-Term Training Aid

The law also creates a new program called Workforce Pell, which is designed to extend Pell Grant eligibility to shorter-term, non-degree training programs. Workforce Pell is scheduled to begin on July 1, 2026, and is intended to support certificate programs in fields such as skilled trades, health care support, and information technology. Eligible programs will need to meet requirements related to length, cost, and outcomes, and the Education Department is responsible for setting the rules that govern them.

What Comes Next

Financial aid administrators are preparing for a compressed implementation timeline. Schools must update aid packages, counseling materials, and software systems before the new rules apply to students starting programs in the 2026-27 academic year. Advocates for students have raised concerns that the borrowing caps could push some graduate students, particularly those in lower-paying fields such as social work, public service, and the arts, toward private lenders with less favorable terms. Supporters of the law argue that limits on federal borrowing will discourage tuition increases and reduce taxpayer exposure.

Borrowers and prospective students are advised to check their school's financial aid office for guidance, review their current loan servicer account, and monitor official Federal Student Aid communications as the July 1 date approaches.