Federal student loan changes that took effect in July 2026 imposed tighter and potentially more costly restrictions affecting new and future borrowers as well as those repaying past higher education debts, adding to the burdens from today’s elevated tuition costs and living expenses. Here’s a look at the new student loan landscape and the implications for those considering taking out loans, setting up a 529 plan account or another savings vehicle, or leveraging a savings-and-loan combination.

What are the new student loan changes?

There are two key elements to know about in the new environment for the nearly 43 million individuals—roughly one in six of all adult Americans—with federal student loan debt. A financial professional may be able to help guide clients through the range of options and the potential impact on a family’s overall financial goals, including balancing education costs with retirement savings, homebuying, and other needs.

1)      SAVE plan ended—A court ruling has eliminated the Saving on a Valuable Education plan, which the Biden administration created in August 2023 to replace other existing income-based student loan repayment plans offered by the U.S. Department of Education. More than 7.5 million borrowers enrolled in the program during its initial rollout, and loan forgiveness was granted to borrowers who had made payments for at least 10 years and originally borrowed $12,000 or less. Others qualified for lower monthly payments on their loans compared with other repayment plans; if a borrower’s income was low enough, their bills could be reduced to $0.

The provisions addressed decades of growth in student debt that left around 9.5 million Americans in default on their loans—more than nine months behind on payments—as of June 2026, according to the U.S. Office of Federal Student Aid. In addition, hundreds of thousands of others are behind on loan payments and at risk of default; nationwide, $1.7 trillion in federally backed student loans is in default, totaling $233.3 billion.

Republican state attorneys general challenged the SAVE plan’s legality, and a federal judge in March 2026 struck down the program, forcing SAVE plan enrollees to find other repayment options. On July 1, loan servicers began notifying plan enrollees that they had 90 days to choose another repayment plan; those who do not switch within that time frame will be auto-enrolled in one of the Education Department’s standard repayment options, which are stricter than the SAVE plan’s terms. The two primary plans are the Repayment Assistance Program, a new income-driven plan, and the Tiered Standard Plan, with fixed payments ranging from 10 to 25 years, depending on the loan balance. At the same time, the government announced a more lenient interest rate reduction for enrollees in an automatic repayment program. The reduction was increased from 0.25% to a more generous 1.00%; the change is temporary and runs through June 2028.

2)      Lower caps on graduate school loans—One component of the sweeping July 2025 legislation known as the One Big Beautiful Bill Act  imposed lower caps on certain types of federally backed student loans. While undergraduate students are generally not affected, new caps on graduate student borrowing took effect on July 1, 2026. For example, the aggregate student loan limit for programs designated as professional degrees in fields such as law and medicine was reduced to $200,000, while other graduate programs were capped at $100,000. Graduate students were previously allowed to take out federal loans up to the full cost of their degrees.

In addition, the legislation gradually ends Grad PLUS loans for new graduate and professional student borrowers. However, a legacy exception allows some returning student borrowers to continue relying on the program. In addition, families taking out Parent PLUS loans now face an annual loan cap of $20,000 per student and a lifetime aggregate limit of $65,000 per dependent student.

Fitting higher education costs into a holistic financial plan

With the changes now in place, students and families deciding among the newly reduced number of federal loan repayment plans can learn more about their choices from a U.S. Department of Education web page, which also features a repayment calculator to estimate costs. With fewer choices, some families may seek to increase their reliance on nonfederal options, such as private loans, which generally cost more than federal loans. Others may wish to look into family wealth transfers or scaling back their education plans if they can’t find affordable options.

For those able to set aside savings to cover future costs rather than borrowing, options include opening a 529 education savings plan account. Here are some key provisions of 529s:

·       Tax features—Contributions are invested through a 529 plan and can potentially grow tax free.¹ As long as account funds are used for qualified expenses, your money isn't taxed when withdrawn; in addition, many states also offer a full or partial tax deduction or credit for your contributions.² (Withdrawals for nonqualified expenses continue to incur ordinary income tax, plus a 10% penalty on earnings.)

^·               Account flexibility—A 529 account can be opened with as little as $250. Most plans allow regular, automatic contributions from a bank account, and family members, friends, and others can make gifts into a 529 account. If a child doesn't need all of the funds or receives a scholarship, the beneficiary designation can be switched to another family member. In addition, 529 account holders can pay back up to $10,000 in student loans and can roll over up to $35,000 to a Roth IRA.³

·       Gift and estate tax benefits—Contributions to a 529 account are considered gifts for tax purposes. The annual gift tax exclusion—the amount you can gift to a loved one tax free without triggering federal gift taxes—for single filers is $19,000 in 2026; for married couples filing jointly, it’s $38,000. Moreover, single filers can gift as much as $95,000 per beneficiary to a 529 account in 2026 without triggering the gift tax if the contribution is frontloaded and treated as if it were spread over a five-year period. Married couples can gift $190,000 in 2026 using the five-year election option. ⁴  The amount contributed must be reported on IRS Form 709 for each of the five years.

Before investing, it’s advisable to check with a tax professional, estate planning attorney, and/or financial professional to help ensure that you understand the rules and risks involved and to see how a 529 account could fit into your overall financial plans.

1 State laws and treatment may vary.  Earnings on nonqualified distributions will be subjected to income taxes as well as a 10% federal penalty tax. Please speak with your tax professional for more information. 2 Consult your financial, tax, or other professional to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. 3 Roth IRA rollovers are limited to the annual Roth maximum contribution limit and aggregate lifetime limit of $35,000. Other restrictions apply. Please consult your tax advisor for more information. 4 For 2026. The donor must elect that the gift be treated as having occurred over a five-year period in order for it to qualify for the federal gift tax exclusion. If additional gifts are made to the same beneficiary during this five-year period, a federal gift tax may apply. If the donor dies within this five-year period, a pro rata share will be included in the donor's estate for federal estate tax purposes. State gift and estate tax laws may vary.