3 Student Loan Mistakes to Avoid Under the Big, Beautiful Bill

With President Trump’s so-called “Big, Beautiful Bill” now the law of the land, borrowers will experience massive changes to federal student loan programs in the coming years.The bill makes a number of changes to the federal aid and student loan system including phasing out several popular repayment plans, limiting student loan forgiveness, and imposing new caps and borrowing limits on new student loans.But the changes are uneven and not necessarily straightforward.Many of the reforms will be phased in over the course of the next three years.

And along the way, borrowers could unknowingly make huge mistakes that would cut them off from critical programs and cost them dearly.Here’s a breakdown of what student loan borrowers should know.Consolidating student loans in 2026 or later Borrowers should be very careful about consolidating their federal student loans after passage of the Big, Beautiful Bill.Doing so could, in some cases, be disastrous.

For some borrowers, Direct loan consolidation is not only prudent, but it is required to access key federal student loan forgiveness and repayment programs.For example, borrowers with older Family Federal Education Loan (FFEL) program loans, typically issued prior to 2011, are ineligible for Public Service Loan Forgiveness (PSLF) unless they are consolidated through the Direct loan program.But many borrowers who consolidate any of their federal student loans in the coming years could lose their student loan forgiveness credit.A Direct consolidation loan that paid off other Direct loans that already had pre-existing qualifying payments toward student loan forgiveness under PSLF would be credited with a weighted average of qualifying PSLF payments, which is a fairly recent change that can prevent this worse-case scenario outcome.

But consolidating loans that have existing credit toward student loan forgiveness under income-driven repayment (IDR) plans could erase that credit under current rules.New federal regulations that went into effect under the Biden administration were supposed to insulate borrowers from this potential catastrophe by allowing for a weighted-average treatment of IDR credit in consolidations, much like PSLF.But those regulations are currently blocked due to an ongoing legal challenge, and it’s looking very possible that those regulations will not be restored.Furthermore, under the “Big, Beautiful Bill,” a borrower who consolidates their federal student loans on or after July 1, 2026, would be considered a “new borrower” and would lose access to existing repayment plan options, notably Income-Based Repayment (IBR) and the Extended and Graduated repayment plans.

Borrowers who consolidate after July 1, 2026, would be limited only to the Repayment Assistance Plan (RAP), a new IDR option created under the Big, Beautiful Bill which has a longer repayment term than IBR, as well as a modified Standard plan.Taking out new federal student loans in 2026 or later In addition, borrowers who take out a new federal student loan on or after July 1, 2026, would also be cut off from existing repayment plan options and would be limited only to RAP and a Standard plan.In essence, taking out a new federal student loan, or consolidating existing loans, on or after July 1, 2026, would have the same effect.“Borrowers that take on any new loan — including borrowers that consolidate an existing federal loan —on or after July 1, 2026 will only be eligible for two repayment plans: the standard repayment plan or the RAP plan,” said the National Consumer Law Center in a blog post published last month summarizing the changes under the Big, Beautiful Bill.

In addition, the new Standard plan for post-July 2026, borrowers has different repayment terms based on the size of the loan balance.Because Public Service Loan Forgiveness (PSLF) requires that payments be made under either a 10-year Standard plan or an income-driven plan, this means that RAP would be the only qualifying repayment plan for PSLF for any borrower who takes out new federal student loans or consolidates on or after July 1, 2026, unless they have a very small loan balance.“RAP would be the only qualifying repayment plan for PSLF for any borrower who takes out new federal student loans or consolidates on or after July 1, 2026.” “Borrowers pursuing Public Service Loan Forgiveness (PSLF) should note that while payments in a 10-year standard plan qualify for forgiveness, payments in standard plans with repayment periods longer than 10 years do not qualify,” said NCLC in the blog post.“As a result, borrowers that take on more than $25,000 in loans after July 1, 2026, will only be able to use the RAP plan to make qualifying payments towards PSLF.” New borrowers also will have more limited deferment and forbearance options under the Big, Beautiful Bill, as well.

“Borrowers that take out loans after July 1, 2027 will not be able to use the economic hardship or unemployment deferments to pause payments if they cannot afford them,” explained NCLC.“In addition, borrowers will only be able to be in many forbearances for up to 9 months during a 2-year period.These new limits on postponing payments in times of financial distress, combined with eliminating $0 payments for new borrowers living in or near poverty, mean that financially distressed borrowers will have fewer options to avoid falling behind and into default.” Potential mistakes for student loan borrowers with Parent PLUS loans While many existing federal student loan borrowers may want to avoid Direct loan consolidation given the changes under the Big, Beautiful Bill, certain Parent PLUS borrowers may want to do the opposite, and some should strongly consider exploring consolidation — but only within the next year.That’s because Parent PLUS loans who don’t consolidate by July 1, 2026, could effectively be cut off from any income-driven repayment plan option as well as eventual student loan forgiveness under both IDR and PSLF.

“The Big Bill significantly changes Parent PLUS borrowers’ repayment options.Only Parent PLUS borrowers that consolidate their loans before July 1, 2026 and are enrolled in any IDR plan between now and July 1, 2028 will be eligible for an income-driven repayment plan after the SAVE, ICR, and PAYE plans are eliminated on or before July 1, 2028,” said NCLC in the blog post.“Those borrowers will be eligible for the Income-Based Repayment (IBR) plan.They will not be eligible for RAP.

Existing Parent PLUS borrowers who do not jump through these hoops in time will be locked out of income-driven repayment options, which could make it very difficult to manage their loans if they cannot afford fixed payments.”  In other words, Parent PLUS borrowers who don’t consolidate their loans by July 1, 2026, and enroll in an IDR plan (effectively IBR, which would be the only current IDR option preserved under the Big, Beautiful Bill) by July 1, 2028, would have no ability to ever enter an income-driven plan.That’s because under no circumstances can a Parent PLUS borrower enroll in RAP, even if they consolidate.And since repaying loans under an IDR plan is typically required for PSLF, as well, these borrowers would also effectively be cut off from student loan forgiveness.“Borrowers that take on new Parent PLUS loans or consolidate their existing Parent PLUS loans after July 1, 2026 will only be eligible for the new standard repayment plan,” said NCLC.

“Parent PLUS borrowers should consider consolidating now, before July 1, 2026, and enrolling in the Income-Contingent Repayment (ICR) Plan so that they can preserve their ability to make reduced payments in an IDR plan in the future.”