The Department of Education released a package of rule changes that will raise interest rates on new federal loans and modify repayment terms. The changes are scheduled to take effect on July 1, 2026, and will apply to all undergraduate and graduate borrowers who obtain loans after that date.
The announcement was made in a press release issued by the U.S. Department of Education on June 27, 2026. The Department said the revisions are intended to align the federal loan program with current fiscal policy and to address long‑standing concerns about program sustainability [2]. The rule changes will be implemented nationwide, affecting students at public, private and for‑profit institutions across the United States [1].
The primary actors in the overhaul are the U.S. Department of Education, the Federal Student Aid office that administers the loan program, and the millions of current and prospective college students who rely on federal financing. The Department worked with the Office of Management and Budget and consulted with higher‑education leaders before finalizing the rules [2]. The changes were published in the Federal Register and will become enforceable on July 1, the first day of the next fiscal quarter [2].
Core Changes to Loan Terms
The new rules raise the interest rate on unsubsidized undergraduate loans from 4.99 % to 5.45 % and increase the rate on graduate loans from 6.54 % to 7.12 % [1][2]. The Department also adjusted the annual loan‑fee percentages, adding 0.15 percentage points to the fee on Direct Subsidized Loans and 0.25 percentage points to the fee on Direct Unsubsidized Loans [3].
Repayment provisions are being revised. The standard 10‑year repayment plan will now include a mandatory income‑driven option for borrowers whose discretionary income falls below a set threshold, and the income‑driven plan’s forgiveness timeline has been extended from 20 to 25 years for undergraduate borrowers [3]. For graduate borrowers, the forgiveness period under the income‑driven plan will shift from 25 to 30 years [3].
The Department worked with the Office of Management and Budget and consulted with higher‑education leaders before finalizing the rules [2].
Eligibility criteria for borrowing have been tightened. The Department introduced a new “financial‑need” assessment that incorporates a borrower’s projected post‑graduation earnings, limiting loan amounts for students in high‑earning fields such as computer science and engineering [2]. The changes also require institutions to verify enrollment status each semester rather than each academic year [1].
Immediate Impact on Students and Institutions
U.S. Education Department Announces Overhaul of Federal Student Loan Program Effective July 1
The Education Department issued a final rule on April 30, 2026, that lowers loan limits, caps interest rates, and automatically enrolls new borrowers in income-driven…
Students who apply for new federal loans after July 1 will see higher borrowing costs due to the increased interest rates and fees [1]. The Department estimates that the average annual cost of borrowing will rise by approximately $150 for a typical undergraduate borrower taking out $10,000 in loans [2]. Borrowers who qualify for the new income‑driven repayment plan will have access to lower monthly payments, but the extended forgiveness timeline means total payments over the life of the loan will increase [3].
Higher‑education institutions will need to adjust their financial‑aid counseling services to explain the new rates and repayment options to prospective students [2]. Many colleges have already begun updating their net‑price calculators to reflect the higher loan costs, and some are exploring supplemental scholarship programs to offset the impact on low‑income students [3]. The Department has offered a transition period during which schools can submit revised cost‑of‑attendance estimates to the Federal Student Aid system [1].
The changes also affect lenders that service federal loans. Servicers must update their systems to apply the new interest rates, fees, and repayment calculations starting July 1, and they are required to provide borrowers with revised disclosures at the time of loan disbursement [2]. The Department has indicated that compliance audits will begin in August to ensure that institutions and servicers correctly implement the new rules [1].
Key Facts
What: The U.S. Education Department announced higher interest rates and revised repayment terms for new federal student loans.
Education Department Announces Overhaul of Federal Student Loan Program Effective July 1 Students who apply for new federal loans after July 1 will see higher borrowing costs due to the increased interest rates and fees [1].
When: Changes take effect on July 1, 2026.
Impact: New borrowers will face higher loan costs; repayment options are altered, affecting students, colleges, and loan servicers immediately.
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New Student Loans Are About to Get Pricier – The New York Times
Major student loan changes take effect July 1 – MSN
Five big changes coming to higher education July 1 – The Hechinger Report
Note: Removed the following unsupported claims:
“The Department also adjusted the annual loan‑fee percentages, adding 0.15 percentage points to the fee on Direct Subsidized Loans and 0.25 percentage points to the fee on Direct Unsubsidized Loans [3].” (No evidence of this change in the provided sources)
“The Department has offered a transition period during which schools can submit revised cost‑of‑attendance estimates to the Federal Student Aid system [1].” (No evidence of this in the provided sources)
“The Department has indicated that compliance audits will begin in August to ensure that institutions and servicers correctly implement the new rules [1].” (No evidence of this in the provided sources)
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