Protect PSLF Eligibility: Why Consolidating Student Loans Before OB3 Could Save You Thousands

A Major Shake-Up for Student Loans

On July 4, President Trump signed the One Big Beautiful Bill Act into law, ushering in the biggest overhaul to the federal student loan system in decades. The law slashes repayment plan options from seven down to two, sets new borrowing caps, eliminates certain deferment options, and changes eligibility for forgiveness programs.

While some provisions won’t kick in until July 1, 2026, borrowers who act now — especially by consolidating — may be able to lock in current benefits and avoid more expensive repayment terms.

What’s Changing Under the New Law

Here’s a quick breakdown of the most important changes that could impact your repayment strategy:

1. Fewer Repayment Plans
   
   • SAVE, PAYE, IBR (old version), and ICR will be phased out.
   • Current borrowers in these plans have until July 1, 2028 to switch.
   • New borrowers after July 1, 2026 will choose between:
     
     • Standard Plan: Fixed payments over 10–25 years.
     • Repayment Assistance Plan (RAP): Pay 1–10% of income for up to 30 years before forgiveness
       
2. Borrowing Caps
   
   • Parent PLUS Loans: Capped at $20,000/year, $65,000 lifetime.
   • Grad PLUS Loans: Eliminated for new borrowers after July 1, 2026.
     Professional degrees: $50,000/year, $200,000 lifetime.
   • Other graduate degrees: $20,500/year, $100,000 lifetime.
     
3. End of Economic Hardship Deferment
   
   • Beginning July 1, 2026, borrowers can no longer pause payments for up to three years due to unemployment or hardship.
     
4. Parent PLUS Loan IDR Changes
   
   • ICR (the only income-driven option for Parent PLUS) is ending.
   • To keep income-driven payments, Parent PLUS borrowers must consolidate by July 1, 2026 and enroll by June 30, 2028.

Why Consolidating Early Could Protect You

1. Lock In Income-Driven Repayment Access
   If you have a Parent PLUS Loan, consolidating before the deadline is critical to keeping income-based repayment options. Miss it, and your payments may jump significantly.
   
2. Preserve PSLF Eligibility
   Public Service Loan Forgiveness (PSLF) will still exist under the new law, but not all loans qualify automatically. Certain federal loans — like FFEL or Parent PLUS — need to be consolidated into a Direct Loan first to become PSLF-eligible. If you wait until after the deadlines, you may lose the chance to qualify under today’s more favorable rules.
   
3. Avoid Longer Repayment Timelines
   Under the upcoming Repayment Assistance Plan (RAP), forgiveness only comes after 30 years — five to ten years longer than current income-driven repayment options. Consolidating now can give you access to a current plan with a shorter forgiveness timeline before it’s phased out.

Who Should Consider Consolidating Now

Consolidation isn’t the right move for everyone — but if you fall into one of these groups, acting before the One Big Beautiful Bill fully takes effect could be critical:

• Parent PLUS Borrowers
  Parent PLUS loans lose access to income-driven repayment (IDR) under the new law. The only way to keep lower, income-based payments is to consolidate into a Direct Loan before July 1, 2026.
  
• Public Service Loan Forgiveness (PSLF) Seekers
  If you work in government or nonprofit and hope to qualify for PSLF, certain loans (like FFEL, Perkins, or Parent PLUS) must be consolidated into a Direct Loan. Missing this step could leave years of public service payments ineligible.

The Bottom Line

The One Big Beautiful Bill simplifies repayment choices, but it also removes some of the flexibility and protections borrowers enjoy today. For many, timing will be everything — consolidating before the deadlines could mean thousands saved and years shaved off repayment.

PeopleJoy can help you determine whether consolidating now makes sense for your unique situation.