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Under President Donald Trump’s One Big Beautiful Bill Act, student loan borrowers who take certain steps will soon have fewer paths to repayment and debt forgiveness.
“Be very careful when taking out new student loans,” says Landon Wormund, a certified financial planner and certified student loan specialist with Reliant Financial Services in Kansas City, Missouri.
Kathleen Boyd, a CFP and founder of Student Loan Savvy in San Diego, said people who took out federal student loans after July 1 are subject to a number of different rules included in a bill passed last year that transform them from “traditional borrowers” to “new borrowers.”
It’s “really a high-stakes gamble,” Boyd said.
Here’s what you need to know:
New borrowing affects old student loans
OBBBA eliminates several U.S. Department of Education student loan repayment plans. Boyd said existing borrowers will still have access to some of these plans, including the lucrative Income-Based Repayment Plan (IBR).
However, those who took out federal student loans after July 1 will only be left with two new repayment options for all their debt, including old loans: the Repayment Assistance Plan (RAP) and the Graduated Standard Plan.
“Even a small undergraduate loan or Parent PLUS loan after July 1 is enough to forfeit the opportunity to repay it under the plan you currently want,” said Walmundo, a member of CNBC’s Financial Advisor Council.
In particular, many borrowers will not want to lose their IBR option. The plan would lead to loan forgiveness in as little as 20 years and reduce monthly payments to $0 for some low-income borrowers, Boyd said.
With RAP, monthly payments typically range from 1% to 10% of revenue. The more you earn, the more payments you will need to make. This plan will only lead to student loan forgiveness after 30 years.
The Tiered Standard Plan spreads your debt over fixed payments over one of four periods, depending on how much you owe. Consumer advocates argue that the plan’s monthly fees would be unaffordable for many people.
Parent borrowers have even fewer options.
Higher education expert Mark Kantrowitz said parent borrowers need to be especially careful about new loans. That’s because those who take out a Parent PLUS loan after July 1 will only have one way to pay off their debt: the tiered standard plan.
Because the program requires borrowers to enroll in either an income-driven repayment plan, such as IBR or RAP, or an older standard repayment plan, these parent borrowers also become ineligible for public service loan forgiveness. PSLF allows nonprofit organizations and government employees to have their student loans forgiven after 10 years.
Suspending student loan payments becomes difficult
OBBBA is also phasing out several relief options for student loan borrowers who have lost their jobs or are facing financial hardship. Current borrowers can still suspend loan payments during these periods, but those taking out loans after July 1 will no longer be able to take advantage of unemployment deferrals or financial hardship deferrals.
How to plan under the new student loan rules
But what happens if you rely on additional student loans to continue paying for college or graduate school? Kantrowitz said many families will have no choice but to continue borrowing money. If that’s the case, it’s important to re-evaluate your expected loan repayments upon graduation and avoid borrowing too much.
Others can make some plans.
For example, the second parent in the household who has not yet borrowed can take out a loan on their behalf. Doing so allows parents who are already borrowing to maintain loan forgiveness and affordable repayment options.
Kantrowitz said students nearing the end of their education may consider taking out small private student loans to avoid losing federal benefits on previous loans. However, please be careful. Private student loans can come with their own risks, including higher interest rates and fewer protections than federal loans.
Consolidation also counts as a “new” loan
Kantrowitz said that at some point, many student loan borrowers choose to consolidate several different loans into one. Common reasons for borrowers to consolidate include wanting to change student loan servicers or restarting the loan term to reduce payments.
But the new rules reduce the benefit of that move, he said: “Obtaining a direct consolidation loan after July 1 will be treated as an entirely new loan.”
According to Kantrowitz, this is effectively the same as taking out a new loan. This means you’ll only have two repayment options left, with mixed effects, and you won’t be able to pause your repayments if you lose your job or run into hardship.
