Federal Student Loan Changes: What Employers Must Know

Your employees are stressed about money. That’s not a new story. But this summer, federal student loan repayment is undergoing its biggest overhaul in decades, and the changes take effect on July 1, 2026. Some of your people are going to be caught off guard. A few of them will see their monthly payments go up. Most of them have no idea what is coming.

That is where Edcor comes in. Let’s get into what’s changing and what you can do to help your employees.

What Is Changing

The U.S. Department of Education finalized a new rule on April 30, 2026. The goal is to simplify how people repay their loans, set limits on how much they can borrow, and retire programs that were not working. Here is what that looks like in practice.

The current menu of income-driven repayment plans, including SAVE, PAYE, and ICR, closes to new borrowers on July 1, 2026. In their place, borrowers will have two options.

• The first is a revised Standard Repayment Plan with fixed payments spread over 10 to 25 years based on how much was borrowed.
• The second is the new Repayment Assistance Plan (RAP), the only income-driven option going forward. Under RAP, monthly payments fall between 1% and 10% of adjusted gross income, with a $10 floor. One important fix built into RAP: it eliminates negative amortization.

Borrowers making consistent payments will not find themselves deeper in debt than when they started, which has been a real and painful problem under some previous plans.

For employees already on SAVE, PAYE, or ICR, those plans sunset on July 1, 2028. Borrowers who do not make a move before that deadline will be auto-enrolled into a new plan.

That is something your workforce needs to hear clearly, and most of them will not hear it unless someone tells them.

On the borrowing side, the Grad PLUS loan program is eliminated for new borrowers starting July 1, 2026.

• Graduate students will be capped at $20,500 per year with a $100,000 lifetime limit. 
• Professional students in fields like law and medicine can borrow up to $50,000 per year, with a $200,000 lifetime cap. 
• Parent PLUS borrowers are now limited to $20,000 per year per student with a $65,000 total cap. 
• And for all federal student loans combined, there is a new overall lifetime borrowing limit of $257,500. 

These caps are intended to stop students from borrowing more than their ROI.

Schools will also have the ability to set their own loan caps at the program level, tied to earnings outcomes and default rates. That is a meaningful shift in accountability, from borrowers alone toward the institutions offering the programs.

Three Dates Your HR Team Should Have on Their Calendar

• July 1, 2026 – New repayment plans take effect; SAVE, PAYE, and ICR closed to new borrowers; new borrowing limits apply to all new loans
• July 1, 2027 – Updated rules for deferment, forbearance, and loan rehabilitation take effect
• July 1, 2028 – Legacy repayment plans fully sunset; borrowers who have not switched are auto-enrolled in RAP or the Standard Plan

Why This Creates an Opportunity for Employers

Student loan debt in this country has reached nearly $1.7 trillion. Less than 40% of borrowers are in active repayment, and nearly 25% are in default. Those are not abstract figures. They describe the financial reality of the people sitting in your offices right now. And 71% of college graduates carrying debt report delaying or abandoning major life milestones, like buying a home or starting a family, because of it.

The good news is that the tools available to employers have never been stronger. The Working Families Tax Cuts Act, signed into law on July 4, 2025, made permanent the ability for organizations to contribute up to $5,250 per year per employee toward student loan repayment, completely tax-free for both the company and the employee. Both federal and private student loans qualify. Starting in 2026, that $5,250 cap is indexed for inflation, so it grows automatically in the years ahead. For 2026 specifically, the cap remains $5,250, with inflation adjustments beginning in subsequent tax years.

Employers can also deduct these contributions as a business expense. Employees receive them tax-free. That combination is genuinely rare in the benefits world.

There is also the SECURE 2.0 provision that allows employers to match qualified student loan payments within 401(k), 403(b), and similar retirement plans, so employees no longer have to choose between paying down debt and building retirement savings.

For a workforce stretched thin financially, both of these tools signal something important: that your organization sees the full picture of what employees are dealing with and is willing to act on it. That matters for recruiting. It matters even more for retention.

How Edcor Can Help

At Edcor, we have spent over 45 years helping organizations build education benefits programs that hold up when the rules change. We know this space inside and out, and we know how to design programs that work for companies of all sizes and industries.

If you are thinking about launching a student loan repayment benefit, or want to make sure what you already have is structured correctly under the new rules, we are ready to help you think it through. Reach out to us at solutions@edcor.com and let’s talk about what makes sense for your organization.