One year after President Donald Trump signed his core domestic policy package into law, student loan borrowers are bracing for a major overhaul of the federal lending system that will begin this week.

Many were already struggling when the Biden administration attempted to enact sweeping student debt relief in the wake of the Covid pandemic, but the proposal encountered Republican blowback. Now, under the Trump administration’s changes, borrowers will experience a range of effects with some seeing little difference in what they owe each month while many lower-income borrowers will be hit the hardest with increases, student advocacy groups and financial planners say.

Come Wednesday, Trump’s “big, beautiful bill” will streamline the system to have fewer loan repayment program options and greater restrictions on how much students can borrow. And it will end the most borrower-friendly repayment program launched under President Joe Biden, forcing many of the more than 7 million people enrolled to pay more in their monthly federal loan bills. Separately, interest rates will also increase.

“There is a real sense of urgency and almost fear around what’s to come,” said Becca Craig, a wealth adviser with Focus Partners Wealth in Kansas City, Missouri, who has seen an uptick in borrowers seeking help before the latest changes take effect.

The new direction is part of the Trump administration’s broader goal of slashing funding from government assistance programs across federal agencies. As part of the plan, the federal student aid program will be transferred from the Education Department to the Treasury Department, which administration officials say is better equipped to get debtors into compliance because it collects defaulted debt for federal and state agencies.

The White House has accused the Biden administration of focusing too heavily on student loan forgiveness and debt cancellation instead of ensuring loans are repaid in an effort to curtail federal spending and pressure colleges to lower tuition costs.

Student borrower Lori Correa, of North Carolina, is in knots over the changes and weighing her options. After using an online loan simulator, she said she estimates her monthly student loan payments would jump from $150 to $713 under one of the new plans because of changes in how payments are calculated.

As a single mother of three in the early 2000s, Correa switched careers from waitressing to legal studies, earning her associate, bachelor’s and master’s degrees while maxing out her student loans in the hope that she would advance in better-paying jobs.

She earns about $60,000 a year as a real estate agent’s personal assistant and still owes roughly $200,000 in student debt, which has been financially crippling when coupled with housing costs and medical bills over the years.

“I would have hoped that I would be making a decent living on the education that I paid such a dear price for,” Correa, now 57, said. “But I was sold a dream. It feels like now, if you are a normal, average person just trying to make it, you’re not going to.”

In the first quarter of 2026, almost 43 million student borrowers carried nearly $1.7 trillion in loans, according to Federal Student Aid statistics. In that same period, an additional 2.6 million student loan borrowers fell into default for nonpayment, a Federal Reserve Bank of New York report found. The report said the average defaulted borrower was nearly 40 years old, from a Southern state and did not have a history of nonpayment before the pandemic.

An Education Department spokesperson said the agency’s online loan simulator to help student borrowers select a new repayment option will be updated ahead of Wednesday and referred to materials on its website laying out how the new plan can be a “simple and affordable option.” Education Secretary Linda McMahon said in a statement in March that the Trump administration is “confident that American students, borrowers, and taxpayers will finally have functioning programs after decades of mismanagement.”

Student borrower advocacy groups, however, worry that the payment increases will only make it harder on people already grappling with a surge in inflation, rising energy and food costs, and affordability gaps in housing and healthcare. They also warn it may drive some low-income and first-generation students to the private lending market, where they may face higher interest rates and have fewer protections against predatory lenders. Or, advocates fear, those students may forgo higher education altogether, affecting their economic mobility and competitiveness.

“Is this plan enough of a safety net for American families?” asked Kyra Taylor, a staff attorney at the National Consumer Law Center, a nonprofit consumer advocacy group. “I think simplification is a good goal, but it has to be affordable to families. If it’s not, then we’re going to see an increase in borrowers who go into default.”

As the new policies take effect, experts say there are four key changes that borrowers should know.

1. New loans

Typically, student borrowers have been able to choose from an array of repayment plans that either came with fixed terms or were based on income.

But those legacy plans are going away, and beginning Wednesday, borrowers who take out a student loan or seek to consolidate existing ones must select between only two new options.

The first, known as the Repayment Assistance Plan, is being touted by the Education Department as a replacement for the Biden-era Saving on a Valuable Education, or SAVE, plan. Under the new plan, borrowers’ monthly payments will be based on adjusted gross income — or their total annual income minus certain tax adjustments, including deductions for dependent children.

At the plan’s lowest income level, borrowers with an adjusted gross annual income of up to $10,000 must still pay at least $10 a month, said Aissa Canchola Bañez, policy director of Protect Borrowers, a student advocacy organization.

“That doesn’t seem like a lot on its face, but if you’re earning $10,000 or less, that is a sizable amount,” Bañez said.

Borrowers will also be required to make payments for 30 years before they may be eligible for loan cancellation.

The other repayment option for borrowers with new loans will be the Tiered Standard Plan, in which payments will be calculated based on one’s outstanding loan balance at a set fixed term from as little as 10 years and up to 25. That may be a faster way for borrowers to pay off their debts and save money on interest compared with the income-based option, which can carry higher interest costs.

The new plans mark a significant departure from the Biden-era offerings.

The SAVE plan has been the most affordable for financially strapped borrowers who may not even be required to make monthly payments. Those on the plan can also see their loans forgiven in as little as 10 years.

2. Older loans

Borrowers enrolled in the SAVE plan will have at least 90 days to move to one of the new plans, the Education Department said in a court filing last week. They could also select a current fixed-term plan or an older one tied to their income, although those will be phased out in 2028.

There’s one other option: They could choose the Income-Based Repayment plan, which isn’t going away because it was created by Congress two decades ago. The plan, which is geared toward borrowers with high debt relative to their income, can allow monthly payments of either 10% or 15% of one’s discretionary income, with loan forgiveness eligibility within 25 years.

Since the plan is based on discretionary income — money left over after paying necessary living expenses — it can translate to a “lower payment for borrowers,” said Craig, the financial adviser.

Millions of borrowers enrolled in Biden administration plans may also face a payment spike because they have not had to make any loan payments since July 2024, Craig said. At the time, some Republican-led states filed litigation attempting to block the SAVE plan, arguing that the Biden administration overstepped its authority in creating it, leading to a protracted court battle.

With the plan now ending, not only will borrowers need to begin payments, but their debt balances will have also accrued interest since summer 2025.

3. Borrowing limits

For decades, graduate students and parent borrowers have had access to tailored loan programs that were not subject to borrowing limits. But beginning Wednesday, such plans will be eliminated and replaced with new loan restrictions, including borrowing no more than $257,500 in federal student loans in one’s lifetime.

Nicholas Kent, the Education Department’s undersecretary, said in a statement in April that creating borrowing limits would help students avoid “racking up excessive loan debt.”

Graduate students will be allowed to seek up to $20,500 in loans each year and up to $100,000 in total.

Professional students, which include those studying law or medicine, can apply for up to $50,000 in loans each year and up to $200,000 in total.

Students currently enrolled in graduate or professional degree programs will be exempt from the new limits for three years. About 1.8 million student borrowers owed graduate loans last fall.

The loan limits have already been caught in a legal battle over who counts as professional students. The Education Department decided to exclude certain fields in healthcare under the changes. In response, several associations, including one for nurse practitioners, sued, and a federal judge last week agreed to pause the administration’s new categorization of “professional degrees” while another challenge to loan limits plays out in court.

Still, the new loan caps can go into effect.

The Education Department said it is “reviewing the order and will take appropriate action.”

Under the new rules, parents can borrow up to $20,000 per dependent child each year, up to $65,000 per child in total.

Taylor, of the National Consumer Law Center, said there may be an unintended consequence for students who realize they don’t have enough in loans to afford college:

“They may not want to go to school at all,” she said.

4. Auto pay discount

With just over a third of student borrowers regularly paying their loans, the Education Department is pushing for more people to sign up for automatic billing to ensure they don’t miss payments.

Borrowers who do so by Sept. 30 will be eligible for a 1% interest rate reduction. Those enrolled already get a 0.25-percentage-point rate deduction, but that will increase to the full 1%, education officials said.

Any interest rate reduction will be especially helpful now, Craig said, because new student loan interest rates are reaching some of their highest levels in years.

Beginning Wednesday, the interest rate for undergraduate loans not subsidized by the government will be at 6.52% and for graduate students at 8.07%. Five years ago, the rates were at 2.75% and 4.3%, respectively. (The changes are unrelated to the bill.)

The new 1% discount, however, will only last through June 2028 and does not apply to some older loans.

“This interest rate reduction will help borrowers as they consider new, affordable repayment plans and work to repay their loans on time,” Kent said in a statement.

Bañez, of Protect Borrowers, said the reduction is a sign that the Trump administration is facing pressure to provide some relief to borrowers, however small.

“This is essentially a Band-Aid on a bullet wound,” she said.