Taking Out New Student Loans Now Could Be a Huge Mistake

Millions of federal student loan borrowers are contending with major changes to repayment programs, as the Education Department moves forward to implement sweeping reforms mandated by the One Big Beautiful Bill Act, legislation that was enacted by congressional Republicans and President Trump last year.But the legislation doesn’t just impact federal student loans already in repayment.Under the changes, taking out any new federal student loans on or after July 1, 2026, could have substantial and lasting repercussions for borrowers.  Many Americans currently in repayment on their federal student loans are experiencing spikes in their monthly payments as the department begins forcing borrowers out of the Saving on a Valuable Education (SAVE) Plan, an income-driven repayment option that was designed to be more affordable than other programs.  Meanwhile, the department has launched two new repayment plans (the Repayment Assistance Plan, or RAP, which is based on income, and the Tiered Standard Plan, which is not), while preparing to sunset two other income-driven plans, the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans, within two years.The dizzying speed and breadth of the reforms are causing confusion for borrowers, while others have reported problems with online applications and mistakes by student loan servicers.

But borrowers should be aware that taking out new federal student loans at this point could now be a catastrophic error that could have real, tangible costs.Here’s a breakdown.New federal student loans will limit repayment plan options Under the new legislative and regulatory changes, as of July 1, 2026, borrowers in repayment on their student loans who go back to school and take out any new federal student loans will lose access to all legacy repayment plan options, including PAYE and Income-Based Repayment (IBR).  Their only repayment options will be RAP, which requires 30 years of payments before a borrower can receive student loan forgiveness (far longer than other income-driven repayment plans), and the Tiered Standard Plan, which the Education Department has confirmed will not be a qualifying repayment plan for loan forgiveness, including Public Service Loan Forgiveness (PSLF).  Importantly, these restrictions wouldn’t just apply to the newly disbursed student loans; they would cover the borrower’s entire federal student loan balance, including their older loans.“Existing borrowers who took out all of their loans before July 1 will keep most of their existing repayment options – for now – and will add the new RAP option,” said the National Consumer Law Center (NCLC) in a blog post earlier this month explaining the changes to student loan programs that went into effect on July 1, 2026.

NCLC noted that the imminent termination of the SAVE Plan, and the subsequent sunsetting of PAYE and ICR, are exceptions to this general rule.“Borrowers who take out any new loans on or after July 1, or who consolidate their existing loans after July 1, will only have two potential options: the new RAP plan or the new Tiered Standard Plan.” The Education Department confirmed this in online guidance updated earlier this month.“If you have at least one loan first disbursed on or after July 1, 2026, you’ll be required to repay all of your eligible Direct Loans, including loans first disbursed before July 1, 2026, under either the Repayment Assistance Plan (RAP) or the Tiered Standard Plan,” said the department.Parent PLUS borrowers face even tighter restrictions The situation is even worse for borrowers with federal Parent PLUS loans, a type of loan issued to the parent of an undergraduate child.

While the child is the one who benefits from the Parent PLUS loan, the parent is legally responsible for its repayment.  To maintain access to income-driven repayment (IDR) plans and student loan forgiveness under IDR and PSLF, Parent PLUS borrowers had to consolidate their loans via the federal Direct Consolidation Loan program before July 1, 2026.  “If you consolidated your Parent PLUS loans before July 1, 2026, and you do not take on any new loans after July 1, 2026, then you can pay your Consolidation loan in an income-driven repayment plan if you enroll in IDR before July 1, 2028,” said NCLC in its analysis.Parent PLUS borrowers would first have to enroll their Direct Consolidation Loan in the ICR plan and make one payment under ICR.Then they can switch to IBR, which is generally more affordable.IBR is preserved under the recent legislative reforms.

But borrowers who did not consolidate their Parent PLUS loans before July 1, 2026, are now officially cut off from IDR and PSLF.“If you did not consolidate your Parent PLUS loans before July 1, 2026, then you will not be able to repay them in an income-driven repayment plan,” said NCLC.“Your options will be limited to fixed repayment plans.” Furthermore, Parent PLUS borrowers who take out any new federal student loans on or after July 1, 2026, will cause their entire loan balance to become ineligible for IDR and PSLF.This is true even if they successfully consolidated their loans through the Direct Loan Program before July 1, 2026, as required, and enrolled in ICR or IBR.

Taking out that new loan will severely restrict their repayment options going forward.“If you consolidated your Parent PLUS loans before July 1, 2026, but you take out any new loans (or consolidate loans) after July 1, 2026, then you will not be eligible to repay any of your Parent PLUS loans (or Consolidation loans that repaid Parent PLUS loans) in an income-driven repayment plan,” said NCLC.“Instead, you will have to pay them in the new Tiered Standard plan.” “If you have parent PLUS loans or a Direct Consolidation Loan that includes a parent PLUS loan, then you’re permitted to repay those loans only under the Tiered Standard Plan” if any loan was disbursed on or after July 1, 2026, echoed the Education Department in its online guidance.New federal student loans will be subject to borrowing limits In addition to imposing restrictions on repayment plan options, new federal student loans disbursed on or after July 1, 2026, will also be capped under new borrowing limits.

That may hinder the ability of prospective students and their families to pay for their degree programs.The new student loan limits primarily center on graduate and professional students, and the parents of undergraduate students.“If you aren’t already enrolled in school, but want to go to school and take out loans in the future, your options will be more limited,” said NCLC in its article.“Many students who go to school after July 1, 2026, will not be able to borrow as much in federal student loans as students who attended school before that date.

This applies to students who go to school for the first time, return to school after stopping a prior program, or return to school for a new program.This change will primarily impact people who go to graduate or professional school and families that rely on Parent PLUS loans (loans taken out by parents for their children’s education).” “If you’re enrolled in a graduate program, you may receive unsubsidized loans up to $20,500 yearly,” said the Education Department in its online guidance.“If you’re enrolled in a graduate program, you’ll have a reduced aggregate loan limit compared to the loan limits effective before July 1, 2026.You may receive unsubsidized loans up to $100,000 in total if you’ve never been a professional student previously.” For professional students, the new aggregate limit is $200,000.

Meanwhile, new Parent PLUS loans will be limited to $20,000 per child per year, and an aggregate total of $65,000 in Parent PLUS loans per child.These limits on new federal student loan borrowing may cause some prospective students to turn to private student loans, which generally have less flexible repayment terms, don’t qualify for income-driven repayment or federal student loan forgiveness programs, and may have higher interest rates.Other students and college-bound families may forgo an advanced degree entirely, advocates have warned.