Student Loan Reform: SAVE Ends, Parent PLUS Deadline, PSLF

Student loan reform heading into 2026 has reshaped nearly every part of federal repayment. The SAVE Plan has been formally ended through a settlement, the tax-free treatment of forgiven balances expired on December 31, 2025, Income-Based Repayment is now open to any borrower who wants it, and Parent PLUS borrowers have until June 30, 2026, to consolidate or lose access to income-driven repayment permanently. If you have federal student loans, at least one of these changes applies to you, and several require action on a deadline.

SAVE Is Over. If You Were Enrolled, Pick a New Plan.

The Saving on a Valuable Education Plan was designed as the most generous income-driven repayment option on the books. It would have protected income up to 225% of the federal poverty guideline, cut undergraduate payments to 5% of discretionary income, and prevented balances from growing through a full interest subsidy.¹² Most of those features never fully took effect. Litigation led by Missouri and other states produced injunctions that moved enrolled borrowers into an administrative forbearance where interest accrued but no payments counted toward forgiveness. In December 2025, the Department of Education settled with the plaintiff states to end the plan.³

If you were enrolled in SAVE or had an application pending, you now need to select a different repayment plan. If you do nothing, your servicer will move you into a plan on its own, and that default may not be the best fit for your income or forgiveness goals.³

Your Income-Driven Repayment Options in 2026

Three income-driven plans remain available: Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR). A fourth plan, the Repayment Assistance Plan (RAP), is scheduled to launch on July 1, 2026.

IBR is the most accessible of the current options. In late December 2025, the Department of Education updated its systems so that borrowers no longer need to demonstrate a “partial financial hardship” to enroll.³ Any borrower can now enter the plan regardless of income. Monthly payments are 10% of discretionary income if you took out loans before July 1, 2014, and 15% for newer borrowers, with discretionary income defined as earnings above 150% of the federal poverty guideline. Forgiveness arrives after 20 years of qualifying payments for newer borrowers and 25 years for older ones.

PAYE and ICR are still open, but anyone enrolled in either must switch to a different plan no later than June 30, 2028.³ Early details on RAP indicate monthly payments ranging from 1% to 10% of earnings, a $10 minimum payment, and a 30-year forgiveness timeline. That extra decade compared to IBR is the trade-off to weigh once RAP opens.

One more date matters. If you take out a new loan or a new consolidation loan on or after July 1, 2026, your IDR enrollment options narrow.³ If you’ve been considering consolidation, finishing before that date preserves your broadest range of choices.

Parent PLUS Borrowers: June 30, 2026 Is a Hard Deadline

Parent PLUS Loans have always had limited repayment access. The only income-driven plan historically available to consolidated Parent PLUS borrowers was ICR, which sets payments at 20% of discretionary income. A workaround known as “double consolidation” once opened other IDR plans, and that loophole has been closed.

To keep any IDR access at all, Parent PLUS borrowers must complete a Direct Consolidation Loan that is disbursed by June 30, 2026. Because processing takes time, the practical cutoff for submitting the application is closer to April 2026. If you are already consolidated and sitting in ICR, you have until June 30, 2028, to switch into a more favorable plan such as IBR.³

Missing the June 30, 2026, deadline is permanent. A Parent PLUS borrower who takes out a new federal loan or consolidates on or after July 1, 2026, will be permanently barred from enrolling in any income-driven repayment plan, including on existing consolidated loans. That also closes off Public Service Loan Forgiveness, which requires an IDR enrollment to work. For a parent in public-sector employment with a large balance, this one date can decide whether forgiveness ever happens.³

Forgiven Balances Can Be Taxed Again

The American Rescue Plan Act had temporarily excluded forgiven student loan debt from federal income tax. That exclusion expired on December 31, 2025. Starting in 2026, a balance forgiven under an income-driven repayment plan is generally treated as cancellation-of-debt income and taxed at your ordinary rate.⁴ For a borrower whose remaining balance after 20 or 25 years is five or six figures, that tax bill can be substantial.

Several forgiveness pathways stay tax-free under federal law:

Public Service Loan Forgiveness after 120 qualifying payments.⁵
Teacher Loan Forgiveness.
Discharges for death or total and permanent disability.

Timing can matter. If you received notification in 2025 that your loans were eligible for forgiveness, you may not owe tax even if the paperwork finished in 2026. The forgiveness event date generally controls the tax treatment, not the processing date.⁴

If your total liabilities exceed the fair market value of your assets at the time of forgiveness, you are insolvent for tax purposes and can exclude some or all of the forgiven amount by filing IRS Form 982. Many borrowers who’ve been on IDR for two decades qualify once they actually run the numbers. State tax treatment varies, so check whether your state follows the federal rule before assuming you’ve seen the full bill.

Public Service Loan Forgiveness Still Works

PSLF is unchanged in its basic structure. It discharges the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a qualifying employer. Only Direct Loans are eligible, so borrowers with older FFEL or Perkins Loans need a Direct Consolidation Loan before pursuing it.

Qualifying employers include:⁶

Government organizations at the federal, state, local, or tribal level, including the military, public schools, and public universities.
501(c)(3) nonprofits.
Non-501(c)(3) nonprofits that provide services like public health, public education, emergency management, law enforcement, or early childhood education. Labor unions and partisan political organizations do not qualify.

Full-time employment means averaging at least 30 hours per week. Vacation and leave time count, including Family and Medical Leave Act leave. Hours from two part-time qualifying jobs can be combined to meet the threshold.⁶

Certify your employment every year using the PSLF Help Tool on StudentAid.gov. You’ll need your most recent W-2 or your employer’s Federal Employer Identification Number, plus an email address for someone at your organization authorized to confirm your employment through a digital signature.⁷ Waiting until you think you’ve hit 120 payments is how counting errors turn into years of lost time.

Check Your Payment Count From the One-Time Adjustment

In 2022, the Department of Education announced a one-time payment count adjustment to correct years of servicer errors: borrowers steered into forbearance instead of affordable plans, payments under non-qualifying plans ignored, and consolidation resetting the clock to zero. The adjustment was completed in the fall of 2024, and updated counts began appearing in borrower accounts in January 2025.⁸

Borrowers received credit for long-term forbearance periods (12 or more consecutive months, or 36 or more cumulative months), payments made under any repayment plan regardless of whether it technically qualified, and time in repayment before consolidation. For PSLF, these months counted as qualifying as long as the borrower can certify qualifying public service employment during those periods. Some borrowers crossed the 120-payment line immediately.

The deadline to consolidate commercially-owned FFEL or Perkins Loans to benefit from the adjustment was June 30, 2024, and it has passed.⁸ If your updated payment count still looks wrong, contact your servicer and request a review.

Interest Capitalization and the Recertification Trap

When unpaid interest capitalizes, it is added to your principal and starts earning interest of its own. Recent regulatory changes removed capitalization in several situations where it used to be automatic. For Direct Loans managed by the Department of Education, unpaid interest no longer capitalizes when you enter repayment after a grace period, exit forbearance, or switch between income-driven plans.⁹

The important exception is IBR. Interest still capitalizes if you leave IBR voluntarily to switch plans, fail to recertify your income by the annual deadline, or recertify at an income high enough that you no longer qualify for a reduced payment. Missing the recertification date is the most common cause and the easiest to prevent. Put the date on your calendar as soon as your servicer provides it.

FFEL loans not managed by the Department of Education follow older, less favorable rules, with capitalization still triggered by forbearance, the end of the grace period, and leaving IBR.⁹ Consolidating into a Direct Consolidation Loan brings those loans under the newer rules. The trade-off: consolidation resets your payment count for future IDR forgiveness, and the one-time adjustment that credited pre-consolidation payments is already closed.

1
U.S. Department of Health and Human Services. 2026 Poverty Guidelines
2
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
3
Federal Student Aid. IDR Plan Court Actions – Impact on Borrowers
4
Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes
5
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
6
Federal Student Aid. Public Service Loan Forgiveness FAQs
7
Federal Student Aid. Public Service Loan Forgiveness (PSLF) Help Tool
8
Federal Student Aid. IDR Account Adjustment
9
Federal Student Aid. Federal Interest Rates and Fees