Student loan ‘big beautiful bill’ changes take effect July 1
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Student loan borrowers who take certain steps will soon face fewer avenues for repayment and debt forgiveness due to President Donald Trump’s One Big Good Bill Act.
“Be very careful when taking out new student loans,” said Landon Warmund, a certified financial planner and certified student loan specialist at Reliant Financial Services in Kansas City, Missouri.
That’s because after July 1, federal student loan borrowers will transition from “old borrowers” to “new borrowers” and be subject to a different set of rules included in legislation passed last year, said Kathleen Boyd, CFP and founder of Student Loan Savvy in San Diego.
Boyd said it was a “really risky thing to do.”
Here’s what you need to know.
New borrowing impacts old student loans
However, anyone who took out federal student loans after July 1 will be left with only two new repayment options for all their debt, including their old loans: the Repayment Assistance Plan, or RAP, and the Tiered Standard Plan.
“Even a small royalty or Parent PLUS loan after July 1 is enough to eliminate your current opportunity to repay under your desired plan,” said Warmund, a member of CNBC’s Council of Financial Advisers.
Most borrowers, in particular, won’t want to lose the IBR option: Boyd said the plan could lead to loan forgiveness in as little as 20 years and offer some low-income borrowers a $0 monthly payment.
Monthly payments under RAP typically range from 1% to 10% of your earnings; The more you win, the larger your required payout. The plan allows student loan forgiveness only after 30 years.
Tiered Standard Plan It spreads your debt over fixed payments over one of four time periods, depending on the amount of your debt. Consumer advocates say the monthly bill on this plan would be unaffordable for most people.
Parent borrowers have even fewer options
Higher education expert Mark Kantrowitz said borrowers should be especially careful when taking out new loans. Because those who go out Parent PLUS After July 1, lenders will have only one way to pay off their debts: the Tiered Standard Plan.
Because the program requires borrowers to be on an income-driven repayment plan such as IBR or RAP, or the former Standard Repayment Plan, these prime borrowers will no longer be eligible for Public Service Loan Forgiveness either. PSLF allows nonprofits and government employees to have their student loans exempt after ten years.
Student loan payment pauses get tougher
How to plan for new student loan rules?
But what if you’re relying on additional student loans to continue paying for college or graduate school? Many families will have no choice but to continue borrowing, Kantrowitz said. In this case, it will be important to re-evaluate your expected loan payments after graduation and make sure you don’t default. taking on too much debt.
Others may take a little planning.
For example, a second parent in the household who has not yet taken out a loan may be able to get a loan instead. This way, the parent who has already borrowed money can maintain loan forgiveness and affordable repayment options.
Students nearing the end of their education may consider a small private student loan to avoid losing federal aid from previous loans, Kantrowitz said. But be careful: Private student loans can come with their own risks, such as higher interest rates and fewer protections compared to federal loans.
Consolidation also counts as a ‘new’ loan
Kantrowitz said many student loan borrowers choose to consolidate their debt at some point, which bundles many different loans into one package. Some of the common reasons borrowers cite include a desire to switch student loan servicers or get a lower payment by restarting the loan term.
But new rules make this move less useful: “A Direct Consolidation Loan “It will be considered a brand new loan on or after July 1,” he said.
Kantrowitz said this is essentially the same move as getting a new loan. This means, among other consequences, that you’ll only have two repayment options and you’ll no longer be able to pause your payments if you lose your job or fall on hard times.
