Federal student loan repayment and forgiveness changes have arrived in waves since 2023, and the biggest shifts take effect in 2026: the SAVE plan is gone, a new Repayment Assistance Plan launches July 1, 2026, Public Service Loan Forgiveness has a new employer restriction, forgiven balances are taxable again, and the pandemic-era protections against default have expired. If you have federal student loans, you likely need to pick a new repayment plan this year, and the consequences of ignoring the mail have returned in full.
The Deadlines That Matter Right Now
Several dates are driving borrower decisions. The 12-month “on-ramp” that shielded missed payments from credit reporting, default, and collections ended in September 2024.1National Credit Union Administration. Resumption of Federal Student Loan Payments The tax exemption for forgiven student debt expired December 31, 2025. The Repayment Assistance Plan (RAP) launches July 1, 2026. The PSLF employer-eligibility rule is scheduled to take effect the same day. PAYE and ICR are being phased out by July 1, 2028. And for loans first disbursed on or after July 1, 2027, economic hardship and unemployment deferments disappear entirely.2NASFAA. Federal Student Aid Change Summary
Most of this flows from the One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, which the Congressional Budget Office estimated would save taxpayers $307 billion over a decade.3American Enterprise Institute. An Analysis of the One Big Beautiful Bill Acts Effect on Student Loans The SAVE plan ended separately, through a court-approved settlement finalized in early March 2026.4U.S. Department of Education. Next Steps for Borrowers Enrolled in Unlawful SAVE Plan
If You Were Enrolled in SAVE
Roughly 7.5 million borrowers were in the Saving on a Valuable Education plan when it was invalidated. Loan servicers began sending transition notices in July 2026 giving borrowers at least 90 days to pick a new repayment plan. If you don’t choose, you will be automatically placed into either the standard repayment plan or the new Tiered Standard Plan.4U.S. Department of Education. Next Steps for Borrowers Enrolled in Unlawful SAVE Plan
A March 2026 federal court order also invalidated most of the underlying July 2023 regulation that created SAVE, including its payment formula and interest subsidies. The order preserved Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) as they existed before that rule.5Federal Student Aid. IDR Court Actions If you want an income-driven plan and you qualify, IBR is the most durable option still available to existing borrowers.
The New Repayment Assistance Plan
RAP will be the only income-driven plan available to new borrowers once it launches on July 1, 2026. Monthly payments scale from 1 to 10 percent of adjusted gross income: 1 percent on the first bracket of $10,000 to $20,000, climbing to 10 percent on income above $100,000. The minimum monthly payment is $10, and borrowers receive a $50 credit for each qualifying dependent.3American Enterprise Institute. An Analysis of the One Big Beautiful Bill Acts Effect on Student Loans
RAP calculates payments on total adjusted gross income rather than shielding a portion, which was a key feature of SAVE. To keep balances from growing, the government waives unpaid interest for borrowers making on-time payments and adds a matching principal credit of up to $50 per month. Any remaining balance is forgiven after 30 years, and payments count toward the 10-year Public Service Loan Forgiveness timeline.6CNBC. Student Loan Borrowers New Repayment Plans
Which Older Plans Survive
PAYE and ICR are scheduled to be phased out by July 1, 2028. Borrowers currently on those plans must switch to RAP, IBR, or the standard plan by that date.7NPR. 2026 Federal Loans Student Changes SAVE Plan IBR remains available, and the One Big Beautiful Bill Act actually expanded access by eliminating the old “partial financial hardship” requirement, which had kept some higher-income borrowers out.8Federal Student Aid Partners. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
A note on broad forgiveness: the Supreme Court in June 2023 struck down the Biden administration’s plan to cancel up to $20,000 for Pell Grant recipients and up to $10,000 for other borrowers earning under $125,000, ruling 6–3 in Biden v. Nebraska that the 2003 Heroes Act did not authorize the program.9The Guardian. Student Loan Forgiveness Supreme Court Ruling No broad executive forgiveness is in effect. Forgiveness today runs through PSLF, Teacher Loan Forgiveness, the long tail of income-driven plans, and discharges for death or total and permanent disability.
Public Service Loan Forgiveness Has a New Restriction
PSLF still cancels remaining balances after 120 qualifying payments while you work for a government agency or a 501(c)(3) nonprofit. A final rule issued October 30, 2025, redefines “qualifying employer” to exclude organizations the Secretary of Education determines have a “substantial illegal purpose.” The Department’s initial examples include supporting terrorism, aiding unauthorized immigration, and performing certain medical procedures on minors.10U.S. Department of Education. Final Rule on Public Service Loan Forgiveness The rule takes effect July 1, 2026.
Two lawsuits are challenging it. National Council of Nonprofits et al. v. McMahon, filed in the District of Massachusetts, was brought by a coalition including the cities of Boston, Chicago, San Francisco, and Albuquerque, along with teachers’ unions, AFSCME, and the National Council of Nonprofits, arguing the rule exceeds the Secretary’s statutory authority and violates the First Amendment.11NPR. Trump PSLF Teachers Loan Forgiveness A parallel suit from a coalition of 22 state attorneys general led by Illinois Attorney General Kwame Raoul calls the rule “flatly illegal” and “arbitrary and capricious.”12Illinois Attorney General. Attorney General Raoul Sues US Department of Education to Block PSLF Restrictions Both are pending. If you work for a nonprofit whose mission could plausibly fall under one of the Department’s categories, the rule’s implementation and the outcome of those cases will determine whether your payments continue to qualify.
Forgiveness Is Taxable Again Starting in 2026
The American Rescue Plan Act provision that made federal student loan forgiveness tax-free expired December 31, 2025. For 2026 and after, debt canceled under income-driven repayment plans is generally treated as taxable income. You’ll receive an IRS Form 1099-C for forgiven amounts of $600 or more, and the full forgiven balance is added to your income for that tax year.13IRS Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes
Several categories remain exempt from federal tax: Public Service Loan Forgiveness, Teacher Loan Forgiveness, and discharges due to death or total and permanent disability.13IRS Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes If you are insolvent at the time of discharge, you may be able to exclude some or all of the forgiven amount using IRS Form 982. State tax treatment is separate and not addressed here.
If You’ve Missed Payments or Defaulted
The quarter ending December 2025 was the first time many delinquent accounts hit the 360-day threshold needed to transition into default after the on-ramp ended. Roughly 7.7 million borrowers now hold defaulted federal loans totaling about $180 billion, or 11 percent of the federally managed portfolio. More than 23 percent of borrowers in active repayment are at least 31 days past due, and about 1.8 million are in late-stage delinquency and at risk of default within six months.14Federal Student Aid. Federal Student Aid Posts Updated Reports – FSA Data Center
Default triggers consequences the government can impose without a court order: damaged credit, collection fees, wage garnishment, seizure of tax refunds (including the Child Tax Credit and Earned Income Tax Credit), and withholding of Social Security benefits.15TICAS. 2025 Student Debt Survey The Trump administration began sending wage garnishment notices to about 1,000 borrowers during the week of January 7, 2026, with monthly volumes expected to grow.16CBS News. Student Loan Borrowers Default Wages Garnished
The Department of Education then announced a temporary delay on broader involuntary collections, including wage garnishment and the Treasury Offset Program, to give borrowers time to evaluate the new repayment options before collections resume in full. No firm end date has been set.17U.S. Department of Education. US Department of Education Delays Involuntary Collections Treat the delay as breathing room, not a reprieve.
One borrower-friendly change: effective July 1, 2027, the One Big Beautiful Bill Act allows you to rehabilitate a defaulted loan twice (previously once), with a minimum payment of $10.2NASFAA. Federal Student Aid Change Summary
Borrowing Caps for New Loans
If you’re borrowing for school going forward, the ceilings have moved. The law eliminates the Grad PLUS program, which had let graduate students borrow up to the full cost of attendance. New annual caps are $20,500 for most graduate students and $50,000 for professional students in 11 designated fields including medicine, law, dentistry, and pharmacy. Aggregate lifetime limits are $100,000 for general graduate students and $200,000 for professional students.8Federal Student Aid Partners. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act Parent PLUS loans are capped at $20,000 per year per child, with a $65,000 aggregate limit per child.2NASFAA. Federal Student Aid Change Summary Undergraduate loan limits are unchanged, though part-time students now have their annual amounts prorated.
Which graduate programs count as “professional” is itself in litigation. In May 2026, 25 states and the District of Columbia sued in U.S. District Court in Maryland, arguing the Department of Education improperly limited the professional category to 11 fields, excluding nursing, physical therapy, nurse anesthesia, and other healthcare programs the states say Congress intended to cover.18NPR. Lawsuit Student Loans Nursing Healthcare Graduate Degree As of late June 2026, a judge struck down the restrictive definition, finding the agency exceeded Congressional instructions.19Inside Higher Ed. 25 States Sue ED Department Over Grad Student Loan Limits If you’re considering a healthcare graduate program, confirm current borrowing eligibility with your financial aid office before enrolling.
For reference, fixed federal rates on loans first disbursed between July 1, 2025, and June 30, 2026, are 6.39 percent for undergraduate Direct Loans, 7.94 percent for graduate Direct Unsubsidized Loans, and 8.94 percent for PLUS Loans.20Federal Student Aid Partners. Interest Rates for Direct Loans First Disbursed Between July 1, 2025, and June 30, 2026
Fewer Safety Nets Ahead
For loans first disbursed on or after July 1, 2027, the law eliminates economic hardship and unemployment deferments entirely and caps forbearance at nine months in any two-year period.2NASFAA. Federal Student Aid Change Summary The Institute for College Access and Success has warned that removing these options could accelerate defaults for borrowers who lose jobs or face financial emergencies.15TICAS. 2025 Student Debt Survey If you expect to borrow after that date, the income-driven path through RAP, with its $10 minimum payment, becomes your main cushion against income shocks.
Program Accountability
The law also introduces a “Do No Harm” test for schools. A program loses federal loan eligibility if, in two of three consecutive years, its graduates earn less than a control group (high school graduates for undergraduate programs; bachelor’s-degree holders in the same field for graduate programs) four years after completion. Students in those programs can still access Pell Grants.3American Enterprise Institute. An Analysis of the One Big Beautiful Bill Acts Effect on Student Loans If you’re evaluating a program, that eligibility status is now a data point worth asking about.
Where to Track Updates
The system is unusually fluid: RAP and the Tiered Standard Plan launch July 1, 2026, SAVE enrollees are being transitioned, PAYE and ICR disappear by mid-2028, and lawsuits over PSLF employer eligibility and graduate loan caps remain open. The Department of Education posts current information on court actions, repayment plan availability, and servicer transitions at studentaid.gov. If you receive a notice from your servicer about choosing a new plan, the 90-day window in that letter is the deadline that controls your account.