Student Loan Changes 2026: A Guide for Parents and Grandparents

Quick answer: On July 1, 2026, new federal rules replaced most income-driven student loan repayment plans with two options, the Repayment Assistance Plan (RAP) and the Tiered Standard Plan, and lowered how much families can borrow through Grad PLUS and Parent PLUS loans. The changes affect current borrowers and may influence whether and how parents choose to help pay down a child’s loan balance. 

What Changed in Student Loan Repayment on July 1? 

Borrowers with new federal loans generally no longer have access to SAVE, PAYE, or ICR. In their place, the Department of Education now offers RAP and the Tiered Standard plan. 

RAP ties monthly payments to income, generally between 1% and 10% of adjusted gross income, and reduces that amount by $50 for each dependent. For borrowers who make on-time payments, the plan may also waive unpaid monthly interest and add a matching principal payment of up to $50 a month when a payment doesn’t reduce the balance by that amount. Borrowers who still carry a balance after 360 qualifying payments may become eligible for discharge. 

The Tiered Standard plan replaces the previous flat 10-year term with repayment periods of 10, 15, 20, or 25 years, depending on how much a borrower owes, which generally results in a lower required monthly payment for larger balances. 

Borrowers who took out loans before July 1, 2026, and currently sit in a phased-out plan generally have until July 1, 2028, to choose RAP, Tiered Standard, or Income-Based Repayment. 

How Do the New Federal Loan Limits Work? 

The same law eliminates the Grad PLUS program for loans first disbursed on or after July 1, 2026. Graduate students can now borrow up to $20,500 a year in unsubsidized loans, subject to a $100,000 aggregate limit. Professional students, including those in medical and law programs, generally face a $50,000 annual cap and a $200,000 aggregate limit, nearly double the graduate figures, so which programs count as “professional” carries real weight. The Department of Education proposed narrowing that definition, a change that could have moved fields such as nursing out of the higher limit, but a federal court recently paused the narrower rule while litigation continues. Families with a student in an affected field may want to confirm the program’s current classification directly with the school’s financial aid office. 

Parent PLUS loans carry new caps as well, generally $20,000 a year and $65,000 total per dependent undergraduate student. Families who previously used a Parent PLUS loan to close an undergraduate tuition gap may find that federal borrowing now covers less of the bill. Graduate and professional students face a related challenge: the lower unsubsidized loan limits described above, combined with the loss of Grad PLUS, may leave a larger gap for higher-cost programs. 

Should You Help Your Child Pay Off Their Student Loans? 

For many families, the more pressing issue isn’t the mechanics of RAP. There is a widening gap between what federal loans now cover and what tuition costs, combined with children or grandchildren who may already carry balances from prior academic years. For households already coordinating broader tax-planning strategies, a loan payoff or gifting decision adds one more piece to weigh. 

A few factors may be worth weighing before making a payment on someone else’s behalf. 

1. RAP’s built-in benefits can change the payoff math. The interest waiver and matching principal payment may reduce a loan’s balance over time in ways a lump-sum payoff doesn’t account for. It may be worth reviewing the numbers with an advisor before assuming an early payoff is the more cost-effective option. 
2. Direct payments may trigger gift tax reporting. A payment made on a child’s behalf generally counts against the annual gift tax exclusion, $19,000 per recipient in 2026. Larger contributions may require filing a gift tax return, even when no tax is ultimately owed. Gifting strategies raise other open questions for families right now, including how contributions to newer account types may be treated. 
3. A 529-to-loan rollover may offer an alternative. Federal law allows a 529 plan to make a qualified withdrawal of up to $10,000 over a beneficiary’s lifetime to repay a qualified education loan without triggering income tax or penalty, which some families may find simpler than a direct payment. 
4. Lower Parent PLUS limits could shift future funding decisions. With borrowing capped, families funding a child’s current or future education may need to rely more on personal savings, 529 plans, or private loans, each carrying different tax and estate planning considerations. 

Talk to Your Advisor Before You Decide 

These changes touch borrowing, repayment, and gifting decisions at the same time, and the approach that fits one family may not fit another. A Savant advisor can help you evaluate options such as an early loan payoff, a 529 contribution for a grandchild, or a gifting structure designed to align with your broader estate plan. Schedule a call to discuss your specific situation. 

This article is for general informational purposes only and does not constitute personalized tax, legal, or investment advice. Program terms, limits, and figures cited reflect federal rules in effect as of publication and are subject to change. Please consult your Savant advisor or a qualified tax professional regarding your specific circumstances before making any decision.