Dear Prosperics Users,

Federal student loans are going through significant changes. New borrowing limits, repayment plans, interest rates, and transition rules may affect students, graduates, and parents differently depending on when their loans were issued and whether they borrow again.

This makes careful planning especially important. A repayment strategy that worked under older rules may no longer be available—or may produce a very different result under the new system.

Most of the student-loan provisions in Public Law 119-21, also called the Working Families Tax Cuts Act, took effect on July 1, 2026. The law established new borrowing limits, generally ended new Graduate PLUS lending, and introduced the Repayment Assistance Plan and Tiered Standard Plan. U.S. Department of Education

For borrowers who receive a new Direct Loan on or after July 1, 2026, repayment choices are generally limited to RAP or Tiered Standard. This may also affect how their older Direct Loans must be repaid. Borrowers who do not take out another loan may retain additional legacy options during the transition, although PAYE and ICR are scheduled to end on July 1, 2028. Individual eligibility can depend on loan history, consolidation, enrollment, and other details. Congressional Research Service

RAP is the new income-driven option. It calculates payments using adjusted gross income rather than the discretionary-income formulas used by older plans. Borrowers with AGI of $10,000 or less have a $10 monthly payment. Above that level, RAP applies rates ranging from 1% to 10% of total AGI, with a $50 monthly reduction for each qualifying dependent and a $10 minimum payment. Congressional Research Service

The bracket structure deserves attention because it can create payment cliffs. For example, a borrower with no dependents and exactly $50,000 of AGI would have a base RAP payment of approximately $166.67 per month. At $50,001, the applicable rate increases and the payment becomes approximately $208.34. That is a monthly increase of about $41.67 resulting from one additional dollar of AGI.

RAP includes an interest benefit for borrowers who make their full required payments on time. When the payment does not cover all current interest, the remaining current interest is generally waived. RAP can also provide a principal match, but borrowers should not assume that the match is always $50. Its amount depends on the required payment and how much principal the borrower paid that month. Remaining debt may be forgiven after as many as 360 qualifying payments. Congressional Research Service

The Tiered Standard Plan uses fixed payments over a term determined by the borrower’s total outstanding Direct Loan balance. The term is 10 years for balances below $25,000, 15 years for $25,000 to $49,999, 20 years for $50,000 to $99,999, and 25 years for balances of $100,000 or more. Longer terms can reduce monthly payments but usually increase the amount of interest paid over time. Department of Education fact sheet

Borrowing limits are also changing. Graduate students are generally limited to $20,500 annually and $100,000 in aggregate. Professional students generally have limits of $50,000 annually and $200,000 in aggregate. Parent PLUS borrowing is generally capped at $20,000 per year and $65,000 per dependent student. Limited transition exceptions may apply to certain students who were already enrolled and had borrowed for their programs before July 1, 2026. Department of Education fact sheet

For loans first disbursed between July 1, 2026, and June 30, 2027, the fixed interest rate is 6.52% for undergraduate Direct Subsidized and Unsubsidized Loans, 8.07% for graduate and professional Direct Unsubsidized Loans, and 9.07% for Direct PLUS Loans. Rates on older loans do not automatically change; each federal loan generally retains the fixed rate assigned when it was issued. Federal Student Aid

Borrowers affected by the end of SAVE may need to make a separate decision. Servicers began sending notices requiring affected borrowers to select another available repayment plan within 90 days. Borrowers who do not respond may be placed into the Standard or Tiered Standard Plan. They should not assume that they will be enrolled automatically in RAP. U.S. Department of Education

Forgiveness also requires tax planning. The temporary federal exclusion covering many student-loan discharges expired after December 31, 2025. Under current law, amounts forgiven through an income-driven plan in 2026 or later may generally be treated as taxable cancellation-of-debt income. PSLF and certain other statutory forgiveness or discharge programs remain excluded from federal taxable income, although state treatment may differ. Tax rules can change substantially before a borrower reaches forgiveness. IRS Taxpayer Advocate Service

These changes are why we developed the Prosperics Federal Student Loan Calculator.

The calculator can estimate RAP payments and compare several major repayment scenarios, including Tiered Standard, IBR, certain legacy PAYE and ICR situations, Graduated and Extended repayment, and an illustrative private-refinancing scenario. It can also model income growth, extra payments, potential forgiveness, estimated federal tax on forgiveness, and some transition paths for borrowers leaving SAVE.

Additional tools examine RAP’s income cliffs, projected interest assistance and principal matching, PSLF progress, potential buyback costs, filing-status tradeoffs, and the possible capitalization of unpaid interest when leaving certain plans.

However, these results should be treated as planning illustrations—not official determinations. The calculator screens several major eligibility rules, but it cannot account for every loan-history, consolidation, servicer, tax, or household factor.

In particular, users with Parent PLUS or consolidated Parent PLUS debt should confirm their options directly with Federal Student Aid or their servicer. Long-term projections depend on assumptions about income growth and future law. State taxes are not included unless specifically entered, private-refinancing terms are illustrative, and calculations for married couples do not model every possible dual-borrower allocation. Estimated forgiveness taxes may also differ from an actual tax return.

The calculator is designed to help you ask better questions:

Should I choose RAP or a fixed repayment plan?
Could taking out another loan change the plans available for my existing debt?
How would a future income increase affect my payment?
What might waiting in forbearance cost?
Could leaving IBR capitalize unpaid interest?
Would PSLF produce a better result than long-term income-driven forgiveness?

There may not be one correct answer for every borrower. The lowest monthly payment is not necessarily the lowest lifetime cost, and the plan with the shortest repayment period may not provide the flexibility a borrower needs.

Before changing plans, verify your loan records and official payment count on StudentAid.gov, review any notice from your servicer, and consider consulting a qualified student-loan, tax, or legal professional.

Don’t just guess. Prosper.

Prosperics Editorial

Sources:

U.S. Department of Education final rule announcement
Department of Education RISE fact sheet
Congressional Research Service: Repayment Assistance Plan
Congressional Research Service: Direct Loan repayment plans
Federal Student Aid: 2026–27 interest rates
IRS Taxpayer Advocate: forgiveness and taxes

Federal Student Loans Are Changing: What Borrowers Should Know