Student loan overhaul caps borrowing and replaces repayment plans

"This is the biggest overhaul of federal student loan lending in decades," said Barry Glassman, an area wealth adviser.

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Big changes coming next month will impact how much money people can borrow for college — and how they pay it back.

“This is the biggest overhaul of federal student loan lending in decades,” said Barry Glassman, president of Glassman Wealth Services, a financial management firm with offices in Vienna, Virginia, and North Bethesda, Maryland.

Starting July 1, new federal rules cap how much students and parents can borrow, while also streamlining repayment into two main options. New borrowers will be required to choose between them.

“The big change is the federal government’s moving from ‘borrow what the school costs’ to ‘borrow what the government allows,’” Glassman said.

Under the new limits, parent borrowers are capped at $20,000 per year and $65,000 in total. Graduate school loans are capped at $20,500 a year and $100,000 total, while professional programs like law and medical school can go up to $50,000 a year and $200,000 total, which could leave a gap between tuition costs and available loans.

At the same time, repayment options like Saving on a Valuable Education, also known as SAVE, are going away.

“The SAVE plan, which really had many different payment plans, are all being wrapped into one new repayment plan,” he said.

That new option, known as the Repayment Assistance Plan, ties payments to income.

“The various payment schedules, such as save and pay and repay, and all of the income-driven repayment programs, those are disappearing for this new thing called RAP, the Repayment Assistance Plan,” he said.

Another new option is a Tiered Standard repayment plan, which, according to the Department of Education, will offer fixed monthly payments based on the borrower’s outstanding principal balance.

Glassman said after years of confusion during the pandemic, the changes at least bring more clarity.

“I didn’t say it’s better, but at least we now have clarity on what the new repayment rules and forgiveness rules might look like,” he said.

He says there are also expanded Pell Grant options tied to short-term job training programs, known as Workforce Pell Grants, which could help students pursuing jobs in the trades or certifications.

He says the key is to know what you have now before the rules change.

“If you have been borrowing and you want to be subject to the old rules, you may not want to tap new programs and things, because you’ll automatically be put into the new program if you borrow new money,” he said.

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