Isn't That Rich Podcast

The Biggest Student Loan Overhaul in Decades Is Happening Right Now

If you've been half-paying attention to the news lately, you might have caught a headline or two about student loans changing. But there's a good chance you don't know how much they're actually changing, or more importantly, whether it affects you personally. That's exactly why we sat down to record this episode of Isn't That Rich, and after doing the research, Ashley's first move was to text her friends. That felt like the right response.

The One Big Beautiful Bill Act, which we're going to call the OBBBA because life is too short, is essentially a total remodel of how student loans work in America. Some things got better. Some things got harder. And there are deadlines coming up in a matter of weeks that you absolutely cannot afford to miss.

Here's what you need to know.

Who This Affects

Let's start with who we're actually talking about, because this is not one-size-fits-all.

If you are a parent who has borrowed money for your child's education, a graduate student, or anyone who is currently repaying a federal loan, the OBBBA has your name on it. All 43 million of you.

If you are an undergraduate student, your borrowing limits have not changed much. The annual amounts you can take out each year are the same as before, and you can still access the same federal loan caps you always could. One new thing that does apply to everyone, undergrad included: there is now a lifetime borrowing limit of $257,500 across all federal student loans combined, meaning everything you borrow for undergrad and grad school counts toward that ceiling. That number won't affect most people, but it's worth knowing it exists. It does not include Parent PLUS loans.

What's Changing for Parents: The Parent Plus Loan

A parent plus loan is exactly what it sounds like. It's a loan taken out in the parent's name, paid back by the parent, to help cover what their child's financial aid doesn't. It's been a lifeline for millions of families, and before the OBBBA, there was no cap. If school cost $60,000 a year, you could borrow $60,000 a year. Simple as that.

Starting July 1st, that changes. Parents can now borrow a maximum of $20,000 per year, with a cap of $65,000 per child across all years of education.

We had a lot of thoughts about this. On one hand, parents have been taking on enormous debt loads that are following them well into retirement, debt that's in their name, not their student's, for a degree their student has long since graduated from. You cannot borrow for retirement. You can only borrow for school. And when parents are still paying off college loans while their own retirement savings sit empty, something has gone sideways.

On the other hand, some private universities cost upward of $60,000 a year. We can debate whether they should, and we did, but the reality is that a $65,000 lifetime cap doesn't go very far at schools like that.

One thing we kept coming back to: when someone walks into a bank and asks for a $100,000 business loan, there's a thorough process. Projections, plans, proof that this investment will pay off. Student loans haven't historically worked that way. Maybe they should.

The time-sensitive part for parents, and this is urgent: If you are working toward any kind of income-based repayment or loan forgiveness on a parent plus loan, you must consolidate your loans before June 30th of 2026. That is two weeks from when this episode airs. Miss that deadline, and you permanently lose access to income-driven repayment for those loans. There is no undoing it.

Here is the part that makes this even more urgent than it sounds: the consolidation has to be fully processed and disbursed by June 30th, not just applied for. Processing takes weeks, and the Department of Education was recommending people apply back in April. If you have not started yet, do not just log in and submit a form. Call your loan servicer directly today and find out whether there is still time to make the deadline. Consolidation is done at studentaid.gov.

One more important note for parents specifically: Parent PLUS borrowers are not eligible for the new RAP plan, even after consolidation. If you consolidate by June 30th, your income-based option is ICR, the Income Contingent Repayment plan. ICR itself is being phased out by 2028, at which point Parent PLUS borrowers on ICR will transition to IBR, the Income-Based Repayment plan. If you miss the consolidation deadline entirely, your only repayment option is the standard plan, with no income-based adjustment available at all.

If you already have a parent plus loan and borrowed before July 1st, 2026, you are grandfathered in to continue borrowing under the old rules for up to three more years. But any new parent plus loans taken out after July 1st, even if you already have existing ones, will reset the rules for all of your loans. So if you are planning to borrow again for a younger child, talk to a student loan specialist before you do.

What's Changing for Graduate Students

The grad plus loan, which was the federal government's way of helping graduate students cover the gap between their aid and the actual cost of their program, is gone for new borrowers as of July 1st.

In its place are new borrowing caps, and they vary depending on what you're studying.

For most graduate degrees, things like a master's, a PhD, nursing, physical therapy, an MBA, the new cap is $20,500 per year with a $100,000 total limit from the federal government.

For what the OBBBA calls professional degrees, specifically eleven designated programs, the cap is higher: $50,000 per year and $200,000 total. Those eleven programs are medicine, law, dentistry, pharmacy, veterinary medicine, optometry, podiatry, chiropractic, theology, osteopathic medicine, and clinical psychology.

Yes, theology made the list. We noticed too.

What doesn't make the list: nursing, physician assistants, physical therapists, occupational therapists, social workers, public health, education, and MBAs. These fields are critical, the demand for them is not going away, and yet they're capped at that lower $100,000 total limit. Meanwhile a physical therapy program can easily cost $120,000 or more. The gap between what the federal government will lend and what these programs actually cost means students will be turning to private loans, typically at higher interest rates, to cover the difference. There has been a lot of pushback from universities and health care organizations on how narrowly the government defined "professional degree," and it's worth following as this plays out.

Whether that's good policy is genuinely up for debate. What's not debatable is that these students need to know about it before they enroll.

The grandfathered rule for grad students: If you are already enrolled in a graduate program and you borrowed federal loans for it before July 1st, 2026, you are grandfathered in and can generally continue under the old rules until you finish your program or three academic years pass, whichever comes first. But the clock and the exact terms depend on when your program started and how your school calculates it, so check with your financial aid office to understand your specific window. The one clear catch that applies to everyone: you must stay continuously enrolled in the same program at the same institution. If you switch programs, take a leave of absence, or withdraw even temporarily, you lose that status and the new caps kick in immediately.

How Repayment Is Changing

This section affects all 43 million federal student loan borrowers, including undergrads. If you have a federal loan and you're paying it back right now, keep reading.

The way you pay back student loans is called a repayment plan, and there used to be quite a few of them. The landscape is now being simplified significantly. Three income-driven plans are being phased out: the SAVE plan, the PAYE plan (Pay As You Earn), and the ICR plan (Income Contingent Repayment). All three stop accepting new enrollments on July 1, 2026, and sunset entirely by July 1, 2028. It's worth noting that the SAVE plan was already suspended and tied up in federal court before the OBBBA passed, so some borrowers were already stuck in limbo even before this became law.

The one income-driven plan that is NOT going away is IBR, the Income-Based Repayment plan. If you are already on IBR, you stay there. And if you are a borrower with existing loans who needs an income-based option going forward, IBR remains available to you. New borrowers starting after July 1, 2026 have two choices: the standard plan or the new RAP.

Option One: The Standard Plan

Think of this like a regular car payment. You borrowed a set amount, and you pay it back in fixed monthly payments over a set number of years. The more you owe, the longer you have.

Here's the breakdown by balance:

• Less than $25,000: 10 years to pay it back
• $25,000 to $50,000: 15 years
• $50,000 to $100,000: 20 years
• More than $100,000: 25 years

At the end of that period, your balance is zero. You paid what you borrowed. This is a predictable option that works well for people earning a steady income who want to know exactly what they owe every month.

There is one significant catch with the standard plan that is easy to miss: it does not qualify for Public Service Loan Forgiveness under the new rules. If you work in public service and are counting on PSLF, you need to be on RAP or IBR, not the standard plan. More on that below.

If you are currently on one of the income-based plans being eliminated and you don't actively select a new plan, you will be automatically moved to the standard plan. Watch for communication from your loan servicer, and make an active choice before that happens.

Option Two: The RAP (Repayment Assistance Plan)

This is the new income-based option for student borrowers. Instead of a fixed payment, you pay a percentage of your adjusted gross income, which is your income after certain deductions like retirement contributions, not just your raw paycheck. If your income goes up, your payment goes up. If things get tight, your payment comes down. After 30 years of qualifying payments, whatever balance remains is forgiven.

To give you a rough idea of what payments might look like:

• Annual income under $10,000: approximately $10 a month minimum
• $30,000 a year: roughly $25 to $75 a month
• $60,000 a year: roughly $150 to $300 a month
• $100,000 and above: up to 10% of your income

A few things worth knowing about RAP. If you're married and file taxes separately, the calculation is only based on your income, not your spouse's. If you have dependents, your monthly payment can be reduced by $50 per dependent, though you will always owe at least $10 a month. And the government will now subsidize the gap if your required payment doesn't fully cover your monthly interest, aka negative amortization, so you won't end up getting further behind the way some borrowers have under older plans.

One important clarification: Parent PLUS borrowers are not eligible for RAP, even after consolidation. RAP is for student borrowers only.

The Tax Bomb Nobody Talks About

This was the part of our research that genuinely caught us off guard, and we don't think enough people know about it.

If you're on the RAP and you make 30 years of payments, whatever balance is forgiven at the end is counted as taxable income in that year. So if you still owe $40,000 when the forgiveness kicks in, the IRS will treat that $40,000 as income you earned that year. Depending on your situation, it could push you into a higher tax bracket and leave you with a significant bill you weren't expecting.

This is not a hypothetical concern. A provision that temporarily excluded forgiven student loan debt from federal taxes expired at the end of 2025 and was not renewed by the OBBBA. Forgiveness discharged after December 31, 2025 is now taxable at the federal level, and potentially at the state level depending on where you live.

Nobody knows what tax rates are going to look like in 30 years either. Planning for forgiveness without planning for the tax bill is only half a plan.

The one exception: if you qualify for Public Service Loan Forgiveness, your forgiveness after 10 years is completely tax-free. No tax bomb.

Public Service Loan Forgiveness Is Still There

PSLF is the program for people who work full-time for a government agency or a qualifying nonprofit. The deal has always been: make 10 years of qualifying payments while working in public service, and whatever you still owe gets wiped out, tax-free.

That program still exists. If you're a teacher, nurse, social worker, firefighter, or public employee counting on PSLF, the path is still there. But there are two things to know.

First, only RAP and IBR count as qualifying repayment plans for PSLF under the new rules. The standard plan does not qualify. If you end up defaulting into the standard plan because you didn't actively make a selection, you will not be building PSLF credit during that time.

Second, starting July 1st, your employer has to be certified as eligible. Payments made while working for an organization engaged in what the law calls a "substantial illegal purpose" won't count toward PSLF progress. The process to certify your employer is straightforward and lives on studentaid.gov. If you're counting on PSLF, go lock that in now before the new rule is in effect.

Pell Grants: Some Good News

Pell grants are free money from the federal government for students who demonstrate financial need. You don't pay them back. The maximum for the 2026 to 2027 school year is $7,395.

A couple of things changed here. For the first time, Pell grants can now be used for short-term job training programs, things like nursing assistant programs, early childhood education, and automotive training that last eight to fifteen weeks. If you want to learn a skilled trade without committing to a four-year degree, this is genuinely meaningful new flexibility.

On the other side, the eligibility rules have tightened. Families with significant assets may no longer qualify even if their income is low, and students who already have a full scholarship from their school are no longer eligible for a Pell grant on top of it.

One bright spot for families who own a small business or a family farm: those assets no longer count against you on the FAFSA when determining Pell grant eligibility. The government is recognizing that owning a working farm or a small business doesn't mean you have cash on hand to pay for college. Same goes for family-owned commercial fishing businesses. To qualify, the business needs to have fewer than 100 full-time employees, and for a farm, you need to live there and operate it.

Your Checklist

We know that was a lot of information. Here's what to actually do with it.

If you have any federal student loan at all: Go to studentaid.gov, log in, and find out what type of loan you have and what repayment plan you're currently on. Do this first.

If you are a parent with a parent plus loan: This is the most urgent deadline in this entire episode. If you want access to income-driven repayment or PSLF, your consolidation loan must be fully processed and disbursed by June 30th, not just applied for. Call your loan servicer directly today to find out if there is still time to make it happen. Do not wait.

If you are currently on the SAVE, PAYE, or ICR plan: Do not wait to be auto-enrolled in the standard plan. Compare RAP and IBR and actively choose what works best for your income and your family size before the deadline.

If you work in public service and are counting on PSLF: Make sure you are on RAP or IBR, not the standard plan. The standard plan does not count toward PSLF under the new rules. Certify your employer at studentaid.gov and lock in your qualifying payment count before the new employer eligibility rule kicks in July 1st.

If you are planning to start grad school after July 1st: Research the new borrowing caps for your specific program and know exactly what gap you will need to cover on your own. Private loans are an option, but come with fewer consumer protections and typically higher interest rates.

If you are already in grad school and borrowed before July 1st: Check with your financial aid office to understand exactly how long your grandfathered status lasts and what could disrupt it. Do not switch programs or take a leave of absence without understanding the impact first.

If you're planning to use RAP and wait for forgiveness after 30 years: Start talking to a tax professional now about what that forgiveness amount could cost you when the time comes. It will be taxable income in the year it is forgiven.

If none of this applies to you: Text a friend. Seriously. Ashley did it the day she finished researching, and those friends were glad she did.

We are not financial advisors or student loan attorneys. We're just two people who did the homework and wanted to make sure it reached the people who need it. Please talk to an accountant, a financial planner, or a student loan specialist about your specific situation. But go to studentaid.gov first. Today.