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Student loan borrowers who take certain steps will soon face fewer repayment and debt forgiveness pathways, due to President Donald Trump’s One Big Beautiful Bill Act.
“Be very careful when it comes to taking out new student loans,” said Landon Warmund, a certified financial planner and certified student loan professional at Reliant Financial Services in Kansas City, Missouri.
That’s because those who borrow federal student loans after July 1 will go from a “legacy borrower” to a “new borrower,” subject to a heap of different rules included in the legislation passed last year, said Kathleen Boyd, a CFP and founder of Student Loan Savvy in San Diego.
It’s “really high stakes stuff,” Boyd said.
Here’s what to know.
New borrowing affects older student loans
However, anyone who borrows a federal student loan after July 1 will be left with just two new repayment options across all of their debt, even their older loans: the Repayment Assistance Plan, or RAP, and the Tiered Standard Plan.
“Even a small undergraduate or Parent PLUS loan after July 1 is enough to eliminate your opportunity to repay under your current desired plan,” said Warmund, a member of CNBC’s Financial Advisor Council.
Many borrowers, especially, won’t want to lose the option of IBR: The plan can lead to loan forgiveness in as little as 20 years and offers some low-income borrowers a $0 monthly payment, Boyd said.
Under RAP, monthly payments typically range from 1% to 10% of your earnings; the more you earn, the larger your required payment. The plan leads to student loan forgiveness only after 30 years.
The Tiered Standard Plan spreads your debt into fixed payments over one of four time frames, depending on what you owe. Consumer advocates say the monthly bill on this plan will be unaffordable for many.
Parent borrowers have even fewer options
Parent borrowers will want to be especially careful taking on new loans, said higher education expert Mark Kantrowitz. That’s because those who take out Parent PLUS loans after July 1 will have just one way to repay their debt: the Tiered Standard Plan.
Those parent borrowers will also no longer qualify for Public Service Loan Forgiveness, since the program requires borrowers to be in either an income-driven repayment plan like IBR or RAP or the old Standard Repayment Plan. PSLF allows not-for-profit and government employees to have their student loans excused after a decade.
Student loan payment pauses get harder
How to plan around new student loan rules
But what if you were relying on additional student loans to continue paying for college or graduate school? Many families will have no choice but to keep borrowing, Kantrowitz said. In that case, it will be important to reassess your expected loan payments upon graduation and ensure you’re not borrowing too much.
Others can do some planning.
For example, a second parent in the household who hasn’t yet borrowed could take out the loan instead. That way, the parent who has already borrowed can preserve their loan forgiveness and affordable repayment options.
Students who are nearing the end of their education may consider a small private student loan to avoid losing federal benefits on their earlier loans, Kantrowitz said. But be cautious: Private student loans can come with their own risks, including high interest rates and fewer protections compared with federal loans.
Consolidating also counts as a ‘new’ loan
Many student loan borrowers at some point chose to consolidate their debt, which repackages their several different loans into one, Kantrowitz said. Some of the common reasons borrowers consolidate include a desire to switch student loan servicers or to get a lower payment by restarting their loan term.
But the new rules make that move less beneficial: “Obtaining a Direct Consolidation Loan on or after July 1 will be treated as a brand new loan,” he said.
It’s effectively the same move as taking out a new loan, Kantrowitz said. That means, among other consequences, you’ll be left with just two repayment options and no longer be able to pause your payments if you lose your job or fall on hard times.
