WASHINGTON — The federal student loan system is set to see a dramatic overhaul beginning this summer, and critics warn it likely will make loans more expensive and difficult to obtain for borrowers — driving them to private lenders or altering their plans for higher education.

Among the major changes are new loan limits for graduate and professional students, a restructured repayment system where new borrowers will have only two plans to choose from and the elimination of a key loan program for graduate and professional students that allowed for unlimited borrowing.

The provisions — most of which will take effect July 1 — stem from congressional Republicans’ mega tax and spending cut bill that President Donald Trump signed into law last year. 

The U.S. Department of Education finalized regulations, published May 1, that implement sweeping changes outlined in the GOP’s “big, beautiful” law. The department received more than 80,000 public comments before the rule was finalized. 

Under Secretary of Education Nicholas Kent said that “at a high level,” the reforms center on “lowering the cost of college, simplifying student loan repayment and restoring accountability to the federal student lending system,” during an April 30 call with reporters regarding the new regulations. 

The average federal student loan debt balance stands at $39,547, according to the Education Data Initiative.

As July 1 approaches, here’s a closer look at some of the biggest changes coming to the federal student loan system: 

Elimination of Grad PLUS 

The Grad PLUS program, which allowed for graduate and professional students to borrow up to the full cost of attendance, will soon be eliminated under the package and unavailable for new borrowers.

“If you are currently borrowing Grad PLUS loans, so you borrowed Grad PLUS loans before July 1, you will be allowed to continue using Grad PLUS until you finish your program, or until three years have expired, basically whichever is sooner,” said Preston Cooper, senior fellow in higher education policy at the American Enterprise Institute, a right-leaning think tank.

“Current students are grandfathered in — it will only be new graduate students, as of this fall, after July 1, who will be subject to the new loan limits,” Cooper said. 

New borrowing caps 

The package also sets forth new annual and aggregate loan limits for graduate and professional students, along with parents who take out federal student loans for dependent undergraduate students. 

Graduate student loans will be capped at $20,500 annually, with a $100,000 aggregate limit. 

Parent PLUS borrowers will have an annual cap of $20,000 and an aggregate cap of $65,000 per dependent. 

Professional student loans will have a $50,000 annual limit and an aggregate cap of $200,000. 

The programs that fall within the department’s “professional” category and are subject to that larger loan cap include: pharmacy, dentistry, veterinary medicine, chiropractic, law, medicine, optometry, osteopathic medicine, podiatry, theology and clinical psychology. 

The department clarified in a fact sheet on the finalized regulations that the “professional” student classifications “do not express a value judgment about the importance of any occupation or field” but instead serve a “loan-administration function.” 

The agency has received immense pushback from groups representing people in fields that do not fall under the department’s definition and will thus be subject to lower annual and lifetime borrowing caps. 

Incoming repayment options 

In another major shift, the regulations replace prior repayment options with two new plans — the Repayment Assistance Plan, or RAP, and the Tiered Standard plan — both of which will launch July 1.

RAP is an income-based repayment plan that “waives unpaid interest for borrowers who make on-time payments that do not fully cover accruing interest,” per the department’s fact sheet. 

Balances under the plan will also “decline with each on-time payment, as unpaid interest is fully waived and the Department then reduces principal by an amount equal to the borrower’s payment, up to $50,” per the agency. 

The Tiered Standard plan offers fixed monthly payments, ranging from a 10-year to 25-year period, depending on the outstanding principal balance of the borrower. 

‘A lot more expensive’

“The upshot is that loan repayment is going to get a lot more expensive for almost everyone, and for some people, it’s going to get significantly more expensive, and the transition is also going to be difficult for a lot of people to manage,” Michele Zampini, associate vice president for federal policy and advocacy at the Institute for College Access & Success, told States Newsroom.

Zampini, whose organization aims to advance affordability, accountability and equity in higher education, said she thinks “there will be a lot of students who will have to turn to the private loan market, who otherwise would have been able to cover their costs through the (Grad PLUS) program.”

Victoria Jackson, assistant director of higher education policy at the nonprofit policy and advocacy group EdTrust, said that with the new loan limits and “drastic cuts to aid availability” in the regulations, “you would really hope that it would come with other, more affordable and better forms of financial aid.” 

“And what they’ve done is just created this vacuum that right now can really only be filled with private loans, which are costlier and riskier for students, or students are just not going to go,” Jackson said.

Meanwhile, the Trump administration continues its efforts to eliminate the Department of Education, including through a series of interagency agreements that transfer several of its responsibilities to other departments. 

Under the most recent agreement, the Treasury Department will take over Education’s responsibility for collecting on defaulted federal student loan debt — the first step in a multiphase process toward Treasury taking on Education’s entire, roughly $1.7 trillion federal student loan portfolio.

Transition to new system

Zampini noted that, when it comes to the incoming student loan regulations, she does not have confidence in the Education Department’s “ability at this moment to successfully manage the transition without a lot of issues, as far as servicing and as far as account tracking and plan enrollment and things like that.” 

Jackson, of EdTrust, said that “by weakening the federal financial aid system, I think there’s a weakening of our higher education system and making it more difficult for low-income students, students of color and other marginalized students to access graduate education.”

She added that “people who complete those degrees tend to have more financial security in the future — they earn more over their lifetimes and, on markers of financial success and opportunity, do better.” 

“I think this is one prong of a plan of undermining our overall higher education system.” 

WASHINGTON — U.S. Senate Democrats this week blasted the Trump administration’s attempts to shift management of federal student loans from the Education Department to the Treasury Department, saying it would contribute to dysfunction in the student loan system.

In a Wednesday letter, the ranking members of five Senate panels — the committees covering banking, finance, education, federal spending and the Appropriations subcommittee overseeing the Education Department — called on Education Secretary Linda McMahon and Treasury Secretary Scott Bessent to “immediately” rescind the interagency agreement announced in March.

The letter is part of Democrats’ efforts to stop President Donald Trump and his administration from outsourcing Education Department responsibilities to other agencies as part of the administration’s attempts to dismantle the department, which Congress created and only Congress can abolish. 

Democratic Sens. Elizabeth Warren of Massachusetts, Ron Wyden of Oregon, Patty Murray of Washington state and Tammy Baldwin of Wisconsin, along with independent Sen. Bernie Sanders of Vermont, who caucuses with the Democrats, penned the letter. 

They are the respective ranking members of the Senate Committees on Banking, Housing, and Urban Affairs; Finance; Appropriations; the Appropriations subcommittee overseeing Education Department funding; and Health, Education, Labor and Pensions.  

They argued the transfer would introduce “more dysfunction into the federal student loan system, worsening the ongoing student loan default crisis that the Trump Administration has already exacerbated.” 

An ‘illegal scheme’

Under the agreement, Treasury will take over Education’s responsibility for collecting on defaulted federal student loan debt — the first step in a multi-phase process toward Treasury taking on the entire, roughly $1.7 trillion federal student loan portfolio. 

The senators called the move an “illegal scheme” that “threatens to trap student loan borrowers, students, and families in chaos and bureaucracy, all while American taxpayers are left to foot the bill for Treasury to administer programs that (the Education Department) can and should administer itself, likely costing more money and burying borrowers and families in unnecessary red tape.” 

The lawmakers also emphasized the spending package Trump signed into law in February rejects the president’s calls to axe the agency — funding the Education Department at $79 billion this fiscal year. 

The senators point to the joint explanatory statement accompanying the measure, which states that “no authorities exist for the Department of Education to transfer its fundamental responsibilities under numerous authorizing and appropriations laws, including through procuring services from other Federal agencies, of carrying out those programs, projects, and activities to other Federal agencies.” 

The lawmakers gave McMahon and Bessent two weeks to respond to their inquiries on the logistics, timing, costs and implementation of the transfer. 

‘A hard reset’

Education Department spokesperson Ellen Keast said in a statement shared with States Newsroom on Thursday that the current approach to student loan management was not working.

“With the student loan portfolio approaching $1.7 trillion and defaults nearing 25 percent, now is the time for a hard reset in how the federal government provides and services student loans,” Keast said. 

“We are confident that our partnership with the Treasury, an experienced and proven fiduciary, will strengthen program administration and better serve American students, borrowers, and taxpayers,” she added.

The Treasury Department did not immediately respond to a request for comment Thursday.