What changes on July 1 — and what it means for borrowers across the South

July 1 is the start of a transition to new student loan policy, not a deadline you need to panic about today.

What's actually happening on July 1

SAVE officially ends, and notices start to go out. Servicers begin notifying the roughly 7 million borrowers still enrolled in SAVE, giving each one 90 days to pick a new plan once their notice arrives. Notices are going out in waves, so while everyone gets the same 90-day window, deadlines may land on different calendar dates depending on when each borrower is notified. Borrowers who don't choose a plan within their window get automatically placed in a Standard plan, which sets payments based on balance rather than income and could end up costing more than an income-driven option.

Borrowing limits are shrinking, especially for Parent PLUS. New federal loan limits take effect, and for many borrowers they're significantly lower than what's been available until now. Grad PLUS loans, which let graduate and professional students borrow up to their full cost of attendance, are going away for most new borrowers, replaced by a $20,500 annual cap for graduate students and $50,000 for professional students, with a $257,500 lifetime aggregate cap across all federal borrowing. While this sounds like a lot, tuition costs will mean that these limits will have major impacts on certain educational pathways. Parent PLUS loans face their own new limits of $20,000 per year and $65,000 over the life of the loan, per dependent student. For families with multiple kids in college or planning to be, that's a major shift in what's available to cover the gap, and may mean that for some families, the gap isn't covered. Some returning students in the same program may qualify for a temporary legacy provision that preserves old limits for a few more years, but new and transferring students don't get that bridge.

The menu of repayment plans is narrowing. Two new plans launch July 1: the Repayment Assistance Plan (RAP), an income-driven option, and the Tiered Standard plan, a fixed payment based on your balance. While new repayment plans sound like good news, the caveat is that anyone who takes out a new federal loan, including a consolidation, on or after July 1 will only have access to RAP or Tiered Standard for all their loans, old and new alike. Existing IDR plans like IBR, PAYE, and ICR aren't available to new borrowers going forward. Even borrowers who avoid new loans only get a grace period: PAYE and ICR are currently scheduled to end by July 1, 2028, which would leave IBR and RAP as the income-driven options left for anyone still in repayment. Each income-driven option has its own pros and cons, so while RAP might be a great option for some borrowers, certain parts of the plan might mean that new borrowing locks some out of affordable repayment altogether.

A temporary interest rate break is available, if you're on auto pay. Borrowers typically already get a 0.25% rate reduction for enrolling in auto pay. Starting July 1, that reduction increases to 1% for anyone enrolled, or who signs up by September 30, 2026, running through June 2028. This benefit requires action: you need to be on auto pay to get it, and if you're switching out of SAVE, you'll need to re-enroll in auto pay under your new plan.

What this means depends on where you're standing

If you're currently on SAVE

You don't need to do anything the moment July 1 arrives. Wait for your servicer's notice, then use your 90 days to compare options rather than defaulting into whatever you're assigned.

If you're working toward PSLF

Tiered Standard payments don't count toward forgiveness. RAP payments do, but RAP may or may not be an affordable payment rate for you. Review all your repayment plan options, and before you borrow again, make sure you know your path to PSLF and how new borrowing may impact that path by limiting you to RAP as your only qualifying repayment option.

If you're working toward income-driven repayment forgiveness

RAP payments continue to count toward income-driven repayment forgiveness, but RAP requires 30 years of payments instead of 20 or 25 like the older plans. Any payments you've made so far will count toward your 30 years for RAP forgiveness, but if you switch to RAP for any time period and then switch back to IBR later, that time in RAP won't count toward your 20 to 25 year IBR forgiveness. This means you can't switch to RAP for lower payments now and still work toward a shorter forgiveness timeline, so make sure you're sure you want to switch before making the change to RAP.

If you're a new or returning graduate or professional student

Grad PLUS loans are ending for most new borrowers starting July 1. Most returning students in the same program may qualify for a temporary legacy provision that allows continued borrowing up to the cost of attendance. New annual and lifetime caps apply either way, so make sure you're planning ahead for how you'll finance your future degrees.

If you hold Parent PLUS loans

Be clear-eyed about where you stand. Parent PLUS loans aren't eligible for RAP, and they were never eligible for most income-driven plans. The one path in was consolidating into a Direct Consolidation Loan and enrolling in IBR, and that window closes July 1. If you haven't already done that, you will not have access to any income-driven repayment option going forward, which means your payments would be based on your balance, not your income. If you have consolidated and are in IBR, hold off on taking out any new loans to ensure you understand the consequences. A new loan would mean any Parent PLUS loans or consolidated Parent PLUS loans are eligible only for Tiered Standard, and that plan does not allow for any forgiveness in the long term.

If you're rebuilding from default

The new interest rate reduction isn't available to you until your loans are out of default. Rehabilitation is the lower-risk path but takes nine months. Consolidation is faster but carries its own tradeoffs, including possible loss of progress toward forgiveness.

If your income is on the lower end

RAP doesn't offer a $0 payment option the way SAVE did. The minimum is $10 a month regardless of income. IBR, for those who aren't borrowing new loans, has a payment cap at the standard 10-year amount and allows for $0 payments, so it's likely to be better for very low income or high-middle income households.

Why this lands harder across the South

These changes don't affect every borrower the same way, and borrowers in the South will see impacts that might hit differently.

Lower limits on Parent PLUS, graduate, and professional loans mean some students who would have gone to school, or maybe even on to grad school, medical school, or law school, simply won't be able to afford to, especially without other family wealth to draw on. That matters more here than in many other regions: nationally, the median White family holds roughly six times the wealth of the median Black family, and a similar gap holds for Hispanic families, according to the Federal Reserve's Survey of Consumer Finances. The South also has a higher concentration of Black and Hispanic residents than most of the country. A policy that requires more out-of-pocket family wealth to finance an education will close more doors here than elsewhere just because the financing isn't available anymore, not because the students are less qualified.

That has a downstream effect on which fields face challenges. Programs that lead to lower-paying, high-need work, like teaching, social work, nursing, and public interest law, are exactly the ones where borrowers have historically counted on income-driven repayment and PSLF to make the debt manageable. If borrowing gets harder and the repayment safety net (RAP, longer forgiveness timelines, fewer forbearance and deferment options, no $0 payment floor) gets thinner at the same time, it's reasonable to expect that calculus to discourage some people from choosing those paths. Southern borrowers already have less room to absorb a more expensive loan system: the region shows higher unemployment and higher student debt-to-income ratios than the national average, so financial strain that would be uncomfortable elsewhere can be untenable here.

The Southern borrowers managing all of this change are doing it with less support. Free, trustworthy one-on-one student loan counseling remains genuinely scarce across the South relative to other regions that have state-funded advocates and student loan support systems, so people are more likely to make these decisions alone, without someone walking them through which plan still fits their goals.

The ground under federal student loan borrowers keeps shifting, and it's exhausting to keep up with. Stay tuned to MDC's resources to follow along with the latest news, guides, and tools.