New US Rules Aim to Cut Tuition and Simplify Loan Repayment: What You Need to Know

The United States Department of Education has put forward a significant proposed rule aimed at reshaping the federal student loan system by cutting higher education costs and simplifying how borrowers repay their loans. The proposal, released as part of broader reforms to federal student loan policy, comes amid ongoing debates over college affordability, rising tuition fees, and student debt burdens facing millions of Americans.

Background: Why the Reform Matters

The federal student loan system in the U.S. has long been criticised for its complexity, high costs, and confusing repayment options. From income-driven repayment plans to the controversial SAVE plan and a maze of loan types including Subsidized, Unsubsidized, Grad PLUS, and Parent PLUS, borrowers often struggle to navigate the system. In response, the U.S. Department of Education has proposed changes intended to curb overborrowing and make repayment more manageable.

These reforms are tied to the One Big Beautiful Bill Act — broad legislation passed into law that empowers the Department to overhaul loan rules, cap borrowing, and restructure repayment plans.

Key Changes Under the Proposed Rule

1. Loan Caps for Graduate and Professional Students

One of the most impactful reforms is the introduction of loan borrowing limits for graduate and professional students:

• Graduate students would be capped at $20,500 per year, with a lifetime limit of $100,000.
• Professional students (such as medical, dental, and law students) would face a $50,000 annual limit and a $200,000 lifetime cap.

Previously, graduate borrowers could access Grad PLUS loans which often had no strict limits, allowing students to borrow up to the total cost of attendance — contributing to ballooning debt. The proposed rule would eliminate the Grad PLUS programme entirely, reducing the risk of unsustainable borrowing.

These changes are designed to discourage excessive debt accumulation, encourage realistic borrowing tied to likely future earnings, and put downward pressure on universities’ tuition pricing by holding institutions accountable for outcomes.

2. Simplified Repayment Options

Under the proposed rule, the Department of Education would streamline repayment plans by phasing out multiple existing plans and replacing them with just two clear options:

• A Standard Repayment Plan with fixed monthly payments over a term of 10, 15, 20 or 25 years depending on the amount borrowed.
• A new income-linked option called the Repayment Assistance Plan (RAP), which scales monthly payments based on income and family size, and includes protections to prevent balances from growing for low-income borrowers.

This shift simplifies what many consider a confusing array of plans previously offered under federal law, including SAVE, PAYE, IBR, and ICR. Beginning July 2026, new borrowers will generally choose only between RAP and the Standard Plan.

The RAP plan is designed so that payments are tied to earnings, with low-income borrowers possibly paying as little as $10 per month. After 30 years of qualifying payments, remaining loan balances may be forgiven — offering a balance of predictability and relief.

3. Institution-Level Loan Caps

Another key feature of the proposal is allowing colleges and universities to set loan caps below federal statutory limits. This means an institution could choose to limit the amount students can borrow for specific programmes in order to:

• encourage alignment with future job prospects, and
• reduce default risks.

Such programme-level caps aim to tie borrowing more closely to expected outcomes, potentially encouraging colleges to adjust pricing or support services for programmes with poor earnings results or high default rates.

4. Loan Rehabilitation Support

The proposal also includes updated provisions to support borrowers who have fallen into default on their loans. Under the new rules, borrowers may receive a second chance at rehabilitation, helping them return to good standing and resume repayment without the long-term consequences of default.

This measure is part of an attempt to reduce barriers that defaulting can create — such as wage garnishment, tax refund seizures, and damaged credit — while still keeping borrowers on a path toward repayment.

What Happens Next

The proposed rule has entered a 30-day public comment period, allowing stakeholders — including students, colleges, taxpayer groups, and advocacy organisations — to submit feedback before the rule is finalised.

The Department has indicated this rulemaking is part of multiple regulations implementing broader higher education reforms supported by Congress. Final decisions will shape how millions of Americans borrow and repay student loans in the coming decade.

Broader Context: Changing Student Loan Landscape

These proposed changes come against a backdrop of wider shifts in U.S. student loan policy. Recent federal news highlights include:

• Record reforms by the U.S. Department of Education intended to cap graduate borrowing and overhaul repayment.
• Federal repayment rules set to take effect in 2026, requiring borrowers to adapt to new repayment structures.
• Major transitions for borrowers previously under the SAVE and other income-driven plans as repayment systems are streamlined.
• Ongoing debates around loan forgiveness and policy changes affecting millions of borrowers.

This evolving policy environment underscores how student loans, college affordability, and repayment flexibility remain pressing political and economic issues in the U.S., particularly as educational costs continue to rise.

What It Means for Students and Families

If finalised, these rules could have significant implications:

• Borrowers may face stricter borrowing limits, especially graduate and professional students.
• Simplified repayment plans may reduce confusion but require adjustment and planning.
• Institution-level caps could influence college choice and financial planning.
• Rehabilitation opportunities could ease long-term damage from default.

Prospective and current students are advised to stay informed about changes, consider their borrowing strategies carefully, and use federal tools like the FAFSA and loan simulators to plan repayment effectively.

Conclusion

The proposed U.S. rules to cut tuition pressures and simplify repayment represent a bold effort to make higher education financing more manageable. By introducing borrowing caps, consolidating repayment options, and enhancing loan rehabilitation pathways, policymakers aim to curb spiralling student debt and rein in educational costs. However, as these changes move through the regulatory process, borrowers, educators, and institutions will need to navigate an evolving landscape with significant long-term implications.