Student loan borrowers who take out new federal loans or consolidate existing debt after July 1 could face fewer repayment and loan-forgiveness options under changes enacted through President Donald Trump‘s One Big Beautiful Bill Act.
Financial planners and student loan experts told CNBC that even small amounts of new federal borrowing could have significant consequences for borrowers seeking to preserve existing repayment and forgiveness benefits.
Borrowers who take out a Direct Loan, including a Direct Consolidation Loan, first disbursed on or after July 1, 2026, will generally have access only to the Repayment Assistance Plan and the Tiered Standard Plan across their Direct Loans, according to Federal Student Aid guidance. Existing borrowers who avoid new borrowing may retain access to older repayment plans, including Income-Based Repayment.
New Borrowing Triggers New Rules
Kathleen Boyd, founder of Student Loan Savvy, told CNBC the changes are “really high stakes stuff” because even small amounts of new federal borrowing can affect repayment options tied to older debt.
Federal Student Aid guidance also states that Direct Consolidation Loans first disbursed on or after July 1, 2026, will generally fall under the new repayment framework. Parent PLUS borrowers face additional restrictions, with Direct PLUS Loans for parents generally eligible only for repayment under the Tiered Standard Plan.
The legislation also phases out certain relief provisions for future borrowers. According to CNBC, borrowers who take out federal loans after July 1 will no longer qualify for unemployment deferment or economic hardship deferment, while existing borrowers will retain access to those protections.
Repayment Pressures Continue To Build
The changes arrive as stress across the student loan system continues to increase.
Recent Federal Reserve Bank of New York data showed delinquent federal student loan debt climbed to a record $171.4 billion during the first quarter of 2026, while roughly 2.6 million borrowers entered default during the quarter. Separate New York Fed research found approximately 3.6 million federal student loan borrowers were already in default, with borrowers aged 50 and older increasingly at risk of falling behind on payments.
At the same time, more than 7 million borrowers are expected to transition out of the Biden-era SAVE repayment program following a federal court ruling earlier this year. Alternative repayment plans generally require borrowers to contribute a larger share of their income toward monthly payments, raising affordability concerns for many households.
Borrowing costs may also rise for future students. Earlier estimates from higher education expert Mark Kantrowitz indicated federal student loan interest rates for the 2026-27 academic year could increase modestly for loans issued after July 1, potentially increasing long-term repayment costs for new borrowers.
Separately, a coalition of states recently challenged portions of the Education Department’s implementation of the One Big Beautiful Bill Act, arguing some healthcare-related professional degree programs could face tighter federal borrowing limits under the new framework.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo Courtesy: jd8 on Shutterstock.com
Recent Comments