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How will the 2025 reclassification affect student loan eligibility and repayment options?
Executive summary
The One Big Beautiful Bill Act (OBBB/“reclassification”) and related Department of Education rules will sharply change who can borrow and which repayment plans are available: borrowers with loans made between July 1, 2014 and June 30, 2026 become newly eligible for the 10%-of-discretionary Income-Based Repayment (IBR) plan, while anyone who borrows or consolidates on or after July 1, 2026 will generally be limited to the new Repayment Assistance Plan (RAP) or a tiered standard plan [1] [2]. Graduate and Parent PLUS availability and borrowing caps are also being narrowed, with legacy “grandfathering” rules for students enrolled or disbursed before July 1, 2026 [3] [4] [5].
1. A tectonic shift in plan eligibility: who keeps IBR, who moves to RAP
The most consequential change is timing-based: borrowers who took out loans between July 1, 2014 and June 30, 2026 — and previously could not access IBR because they lacked a “partial financial hardship” — are now eligible for IBR, which sets payments at 10% of discretionary income with a 20‑year cancellation term [1]. By contrast, the Department and analysts say anyone borrowing or consolidating on or after July 1, 2026 will typically only have access to RAP (an income-based program administered under the new rules) or a tiered standard plan, limiting movement among older IDR plans for new loans [2].
2. Grandfathering and legacy eligibility: narrow but consequential exceptions
Several institutions and advocates note a carefully drawn “legacy” carve-out: students enrolled in a program as of June 30, 2026, or who had a Direct Loan made for that program before July 1, 2026, can remain under prior borrowing and repayment rules [3] [4]. Universities are advising students that borrowing in 2025–26 can preserve Grad PLUS eligibility and higher borrowing caps through program completion under legacy provisions [4] [5]. This creates a window where timing a loan or program start can materially change a borrower’s long-term options [4] [5].
3. Graduate, professional, and Parent PLUS borrowers face new caps and program end
OBBB phases out the Graduate PLUS program for new borrowers after July 1, 2026 and imposes new annual and aggregate limits for Direct Unsubsidized and Parent PLUS borrowing (e.g., undergrad Parent PLUS caps and new aggregate ceilings for graduate borrowing), with universities publicly summarizing those limits to students [5] [4]. Harvard, Emory and other institutions instruct affected students to borrow in the 2025–26 academic year if they want legacy Grad PLUS capacity through program end [6] [4] [5].
4. Public Service Loan Forgiveness (PSLF) and RAP interplay — contested, but some continuity
Regulators and observers report that RAP payments will be allowed to count toward PSLF if other PSLF criteria are met, attempting to preserve a track for public‑service borrowers; however, advocacy groups and news outlets document ongoing legal and policy disputes that affect SAVE/IDR features and the broader forgiveness landscape, creating uncertainty for borrowers relying on PSLF [1] [7] [8]. Inside Higher Ed notes Department negotiators promised steps to help borrowers exit default and preserve counts in some cases, but the implementation details remain contentious [9].
5. Practical consequences for students: timing, consolidation, and default carve-outs
Because eligibility depends heavily on when loans are disbursed or consolidated, consolidation decisions will be pivotal: consolidating after July 1, 2026 may lock a borrower into RAP/tiered standard options and forfeit access to older IDR plans [2]. Several sources warn students to run the numbers now and consider whether borrowing in 2025–26 (to preserve legacy protections) makes sense for their program and finances [4] [5].
6. Areas of uncertainty and competing viewpoints
Reporting and advocacy groups differ on the practical reach of these reforms: some stress RAP’s protections and that RAP payments can count toward PSLF [1] [7], while others emphasize that limits on Parent PLUS, elimination of Grad PLUS for new borrowers, and court actions restricting SAVE mean some borrowers face worsened terms or lost benefits [2] [7] [8]. Inside Higher Ed underscores administrative complexity and promises from ED to help certain defaulted borrowers, but available reporting shows implementation and servicer readiness remain unsettled [9].
7. What borrowers should do now
Given the timing rules and legacy carve-outs, affected students should: [10] confirm program enrollment and disbursement dates with their school (universities are issuing guidance about borrowing windows) [4] [5]; [11] avoid automatic consolidation without checking how it affects eligibility [2]; and [12] consult servicers and student aid offices about whether RAP, IBR, PSLF counting, or legacy protections will apply to their loans [1] [9]. Sources warn that legal challenges and further rulemaking could alter details, so monitor official StudentAid.gov updates (p1_s2; [14] not found in current reporting).
Limitations: this briefing uses the documents and reporting provided; implementation details, future litigation, and IRS tax treatment beyond 2025 are evolving and may change borrower outcomes [8] [13].