U.S. Education Department finalizes student loan rule to cap borrowing and cut repayment costs

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Student loan rule finalized

Highlights

U.S. Department of Education final rule ends the Grad PLUS program, introduces borrowing caps for graduate students, and lets schools set program-level loan limits.
The new Tiered Standard repayment and Repayment Assistance Plan aim to reduce negative amortization and limit taxpayers' costs, with projected taxpayer savings of $409 billion and reduced student debt by $224 billion.
Major regulatory changes take effect July 1, 2026, impacting a sector where 40% of borrowers are in active repayment and graduate students hold over a third of federal loan debt.

Rule package sets borrowing caps and new repayment plan

As reported by the U.S. Department of Education, the final rule establishes new loan limits for graduate and professional students, ends the Grad PLUS program, and allows institutions to set program-level borrowing caps tied to the value of their academic offerings.

The Department also creates a new Tiered Standard repayment option and a new income-driven plan called the Repayment Assistance Plan, which it says eliminates negative amortization. Officials say the changes are intended to preserve access to federal student loans while reducing the risk that borrowers take on debt they cannot repay.

Under Secretary of Education Nicholas Kent says the administration is trying to make higher education more affordable and address longstanding problems including rising tuition, unchecked borrowing, and a repayment system that leaves some borrowers with growing balances even after making payments. The Department says the final rule saves taxpayers $409 billion and reduces student loan debt by $224 billion by curbing overborrowing and ending what it describes as excessive loan forgiveness schemes.

Implementation timeline and sector impact

The rule follows legislation signed on July 4, 2025, and a regulatory process that included a public hearing in August 2025, negotiations by the Reimagining and Improving Student Education, or RISE, Committee in September through November 2025, and a proposed rule published in the Federal Register on January 30, 2026. The Department says it received more than 80,000 public comments before finalizing the package.

Most provisions take effect on July 1, 2026, while rules related to rehabilitation, deferment, and forbearance take effect on July 1, 2027. The phaseout of certain repayment plans is scheduled for July 1, 2028, with the final rule placed on public inspection on April 30, 2026, and formal publication set for May 1, 2026.

The changes come as the higher education sector faces sustained scrutiny over tuition growth, loan repayment outcomes, and the return on investment of graduate programs. The Department says less than 40 percent of borrowers are in active repayment, nearly 25 percent are in default, and graduate students hold more than a third of all federal student loan debt.

Our earlier report on private student-loan lenders’ response to the upcoming federal overhaul outlined how companies like Navient, Sallie Mae, and College Ave were preparing for higher demand from graduate borrowers as Grad PLUS is eliminated and new borrowing caps take effect. We noted that lenders were rolling out new products to fill the expected funding gap, while policymakers and advocates warned that a larger private-lending role could increase risks for students due to lighter oversight compared with federal programs.

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