Student Loan Forgiveness Under Trump: PSLF, SAVE, and Taxes

Student loan forgiveness under the Trump administration has been rebuilt around the One Big Beautiful Bill Act (P.L. 119-21), signed on July 4, 2025.¹ The law creates a new income-based repayment plan with a 30-year forgiveness window, reinstates the stricter 2019 borrower defense rules, caps Parent PLUS borrowing, and lets an expiring tax provision make most forgiven debt taxable again starting in 2026. Public Service Loan Forgiveness still exists, but the definition of a qualifying employer is being narrowed. And the SAVE Plan, which many borrowers were counting on, has been blocked by a federal court.

The New Repayment Assistance Plan

The Repayment Assistance Plan, or RAP, takes effect July 1, 2026, and is the centerpiece of the new forgiveness structure for borrowers with eligible Direct Loans.² If you take out any new federal loans on or after July 1, 2028, RAP will be your only income-based option.

Here is how it works:

Monthly payments run on a sliding scale from 1% to 10% of your total adjusted gross income, not discretionary income. The percentage rises one point for every $10,000 of AGI above $10,000. If your AGI is $10,000 or less, you pay $10 per month.
Your payment drops by $50 for each dependent you claim.
If your payment doesn’t cover the interest that accrues, the unpaid interest is waived. Your balance won’t grow while you’re making required payments.
If you repay less than $50 in principal in a given month, the government matches your principal payment up to $50.
Any remaining balance is forgiven after 360 monthly payments — 30 years — whether the debt is from undergraduate or graduate study.

The law also opens the older Income-Based Repayment plan to borrowers who previously couldn’t qualify because they lacked a “partial financial hardship,” and it allows parents who consolidate Parent PLUS loans to enroll in IBR for the first time.¹

What Happened to SAVE and the Other IDR Plans

A federal court order issued in March 2026 blocked the SAVE Plan along with key parts of other income-driven repayment plans.³ Borrowers enrolled in SAVE or waiting on applications were placed into forbearance. The court invalidated SAVE’s payment formula, its discharge provisions, and its interest subsidies, effectively gutting the plan.

If you were relying on SAVE, contact your servicer and choose a different repayment plan. If you don’t, your servicer will move you into one.

Public Service Loan Forgiveness

PSLF is still on the books. The statute still requires 120 qualifying monthly payments while you work full-time for a government agency, a military branch, or a nonprofit described in Section 501(c)(3) of the tax code.⁴ Only Direct Loans count, though consolidating other federal loans into a Direct Consolidation Loan can make them eligible. Payments made under RAP will count toward the 120-payment requirement.¹

The change to watch is on the employer side. A March 2025 executive order directed the Secretary of Education to revise the definition of “public service” to exclude organizations the administration considers to be engaged in activities with “a substantial illegal purpose,” including aiding immigration law violations, supporting terrorism, or what the order describes as child abuse.⁵ If those revisions are finalized through rulemaking, certain nonprofits could lose eligibility as PSLF employers. If your employer might fall into one of those categories, watch for proposed regulations and public comment periods.

Context on how strict PSLF review can be: the Government Accountability Office reported that about 99% of forgiveness applications were denied as of March 2019, mostly on technicalities such as having Federal Family Education Loans instead of Direct Loans or being on a repayment plan that didn’t qualify.⁶ Certifying your employment every year and confirming your loan type and repayment plan remain the safest way to avoid a denial at year 10.

Borrower Defense and Closed School Discharges

If you believe your school defrauded you, borrower defense is the path to a discharge. The rules have swung back and forth between administrations, and the current standard is the stricter 2019 rule.

Under that rule, you must prove your school made specific misrepresentations with the intent to deceive, and that those misrepresentations caused measurable financial harm. There is a three-year deadline for filing after you leave the school, and there are no automatic group discharges for all students at an institution.⁷ The One Big Beautiful Bill Act reinstates the 2019 regulations “as if the regulations were never amended” for any loans originated before July 1, 2035, and applies the same rollback to closed school discharge rules, which now require individual applications.¹

One carveout matters. The Sweet v. McMahon class action settlement, approved by the court in November 2022, remains legally binding. It requires the Department of Education to process borrower defense claims from students at specified schools under defined timelines and to provide full relief, including loan discharge, payment refunds, and credit report corrections, to qualifying borrowers.⁸ The Department has reopened previously denied cases for review under the settlement, though proceedings around a handful of specific schools have created temporary delays.

Parent PLUS Borrowers

Parent PLUS borrowers have fewer forgiveness options, and the new law preserves that gap while adding limits. RAP is not available to Parent PLUS loans.¹ The meaningful opening is that parents who consolidate their PLUS loans can now enroll in IBR, which was previously blocked.

Starting July 1, 2026, new Parent PLUS borrowing is capped at $20,000 per year per student, with a $65,000 lifetime limit. Current borrowers get a three-year transition period, or until the student finishes the program, to continue borrowing under the old rules that allowed borrowing up to the full cost of attendance minus other aid. If you are currently borrowing or considering Parent PLUS loans, consolidating before July 1, 2026, preserves access to existing income-driven repayment options.

Automatic Discharge for Totally and Permanently Disabled Veterans

Veterans with a total and permanent disability continue to get an automatic route to discharge. A presidential memorandum signed in August 2019 directed the Department of Education to identify eligible veterans using Department of Veterans Affairs records rather than requiring a manual application.⁹ The memorandum noted that roughly 50,000 veterans qualified at the time but only about half had received discharge, largely because they didn’t know how to apply. The opt-out model remains in place.

Taxes on Forgiven Debt Starting in 2026

A detail that catches many borrowers off guard: starting in 2026, most forgiven student loan debt is taxable as ordinary income. The American Rescue Plan Act had temporarily excluded student loan forgiveness from taxable income, but that provision expired on December 31, 2025.¹⁰ If you reach the end of a 30-year RAP repayment period with $80,000 forgiven, the IRS treats that $80,000 as income for the year.

The important exceptions: forgiveness through PSLF, Teacher Loan Forgiveness, and discharges due to death or total and permanent disability do not trigger a tax bill.¹⁰ For everyone else heading toward eventual income-driven forgiveness, the tax hit at the end is real and worth planning for.

If you are insolvent when your debt is forgiven, meaning your total liabilities exceed the fair market value of your assets, you can exclude some or all of the forgiven amount from income by filing IRS Form 982.¹¹ The exclusion is capped at the amount by which you’re insolvent. If your debts exceed your assets by $40,000 and $80,000 is forgiven, you can exclude $40,000 and owe taxes on the remaining $40,000.

What to Do Now

If your income-driven plan was disrupted by the SAVE litigation, contact your servicer and pick a new plan before you’re placed into one automatically.³ If you are pursuing PSLF, keep submitting annual employment certifications; the statute hasn’t changed even as the administration works to narrow which employers qualify. If you are a Parent PLUS borrower, weigh consolidating before July 1, 2026, to keep access to current income-driven options. And if you’re years away from income-driven forgiveness, start setting aside money for the eventual tax bill rather than being surprised by it.

1
Federal Student Aid. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
2
Congress.gov. The Repayment Assistance Plan (RAP) in P.L. 119-21
3
Federal Student Aid. IDR Court Actions
4
Office of the Law Revision Counsel. United States Code Title 20 – 1087e
5
The White House. Restoring Public Service Loan Forgiveness
6
U.S. Government Accountability Office. Public Service Loan Forgiveness: Opportunities for Education to Improve Both the Program and Its Temporary Expanded Process
7
GovInfo. 84 FR 49788 – Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program
8
Federal Student Aid. Sweet v. McMahon Settlement
9
The White House. Presidential Memorandum on Discharging the Federal Student Loan Debt of Totally and Permanently Disabled Veterans
10
Taxpayer Advocate Service. What to Know about Student Loan Forgiveness and Your Taxes
11
Office of the Law Revision Counsel. United States Code Title 26 – 108