Student Loan Repayment Overhaul: New Plans, Deadlines, and Forgiveness

The student loan repayment overhaul enacted through the One Big Beautiful Bill Act on July 4, 2025, eliminates the SAVE, PAYE, and ICR plans, keeps a modified Income-Based Repayment plan for existing borrowers, and creates a new Repayment Assistance Plan (RAP) that will be the only income-driven option for anyone who borrows after July 1, 2026.¹ For most borrowers, especially anyone who was enrolled in SAVE, monthly payments will go up and forgiveness will take longer.

Which Plans Are Ending

Three income-driven plans are being sunset: Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR).¹ After July 1, 2026, no new enrollments will be accepted in any of them. Borrowers who take out a new loan or a new consolidation loan on or after that date also lose access to IBR.

SAVE was already in trouble before the law passed. A federal court order issued in March 2026 blocked the Department of Education from implementing it and required enrolled borrowers to pick a different plan and resume payments.² The new law closes the door for good.

What You Can Enroll In Now

Two income-driven options remain, and which one you can use depends on when your loans were disbursed. IBR stays open to anyone with loans originated before July 1, 2026. RAP, created by the new law, must be available no later than July 1, 2026, and is the only income-driven plan for loans taken out after that date.³ The standard ten-year fixed plan is still available to everyone.

IBR for Existing Borrowers

The IBR payment formula did not change. If you first borrowed before July 1, 2014, you pay 15 percent of discretionary income with forgiveness after 25 years. If you first borrowed on or after July 1, 2014, you pay 10 percent with forgiveness after 20 years.¹ One rule did loosen: the “partial financial hardship” test is gone, so any eligible borrower can enroll in IBR even if the payment would not be lower than their standard payment.³

The Repayment Assistance Plan

RAP payments range from 1 to 10 percent of adjusted gross income, with a floor of zero for borrowers whose income falls below 150 percent of the federal poverty level. Any remaining balance is forgiven after 30 years of qualifying payments. That is a longer horizon than any current income-driven plan.

How the New Payment Is Calculated

Both RAP and IBR protect income up to 150 percent of the federal poverty level. Anything above that line is subject to the plan’s percentage, capped at what you would pay under the standard ten-year plan. For 2026, the poverty level for a single person in the contiguous United States is $15,960, so the protected amount at 150 percent is $23,940.⁴

Anyone moving off SAVE will feel the difference immediately. SAVE protected income up to 225 percent of the poverty level and charged only 5 percent of discretionary income on undergraduate debt.⁵ Consider a single borrower earning $50,000 a year with only undergraduate loans:

Under SAVE, protected income was $35,910, discretionary income was $14,090, and at 5 percent the monthly payment was about $59.
Under RAP or IBR at 10 percent, protected income is $23,940, discretionary income is $26,060, and the monthly payment is about $217.

That is nearly four times the previous payment at the same salary. Higher incomes see larger dollar increases, though the standard ten-year payment amount still functions as a ceiling.

Deadlines and What Happens If You Do Nothing

The hard line is July 1, 2026. Any new loan disbursement or new consolidation loan on or after that date locks you out of IBR, PAYE, and ICR, leaving RAP as the only income-driven choice.¹

If you are currently on ICR, PAYE, or SAVE, you have until June 30, 2028, to voluntarily switch to either IBR or RAP. After that date, the Department of Education will move you into one of the two remaining plans automatically. Staying passive is not neutral. The plan the department picks may not be the one that produces the lower payment or the shorter forgiveness timeline for your situation.

Existing borrowers who take out no new loans after July 1, 2026, keep access to whichever version of IBR matches their original loan date, or they can opt into RAP instead.¹

Forgiveness Timelines Side by Side

Original IBR, for loans before July 1, 2014: forgiveness after 25 years.
Revised IBR, for loans from July 1, 2014 through July 1, 2026: forgiveness after 20 years.
RAP, for all new loans after July 1, 2026: forgiveness after 30 years.

A borrower entering repayment at 22 under RAP would not see forgiveness until 52 at the earliest. Under SAVE, that same borrower with undergraduate-only debt could have qualified at 42.⁶

Public Service Loan Forgiveness Still Works

PSLF survived the overhaul. Full-time employees of qualifying government or nonprofit employers can still receive tax-free forgiveness after 120 qualifying monthly payments, or 10 years. Payments made under RAP count toward those 120 payments, so future borrowers who go into public service are not shut out.³ Employer certification through the PSLF Help Tool on the Federal Student Aid website works the same way it did before.

Parent PLUS Borrowers Get a Better Deal

Parent PLUS loans have historically been excluded from most income-driven plans. The only path in was to consolidate and enroll in ICR, which charged 20 percent of discretionary income with forgiveness after 25 years. Under the new law, a consolidation loan that repaid a Parent PLUS loan qualifies for IBR.³ That means 10 percent of discretionary income instead of 20 percent, and forgiveness at 20 years instead of 25.

Taxes on Forgiven Balances

The American Rescue Plan Act’s exclusion of forgiven student loan balances from federal taxable income expired at the end of 2025. The new law made the exclusion permanent for loans cancelled due to death or disability, but it did not extend the broader exclusion for income-driven forgiveness. Any forgiveness under IBR or RAP after January 1, 2026, should be treated as taxable income in the year it happens.

On a $40,000 forgiven balance, that can produce a federal tax bill of $8,000 or more depending on your bracket, all due at once. Borrowers on the 30-year RAP timeline may face particularly large forgiven balances after decades of interest, so setting money aside during repayment matters.

Interest Accrual Without SAVE’s Subsidy

SAVE covered any interest a borrower’s monthly payment did not pay off, so balances never grew. RAP and IBR do not include that subsidy. Interest that goes uncovered by your monthly payment can be added to principal over time.

On a $30,000 loan at 5 percent with a $100 monthly payment, roughly $25 in interest goes unpaid each month in the early years. Over a decade, that adds thousands. Paying even slightly above the minimum blunts the effect.

Which Loans Are Covered

The overhaul applies to federal loans issued under the Direct Loan Program: Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans for graduate students, consolidated Parent PLUS loans, and Direct Consolidation Loans. Private student loans are not affected.

Estimating Your New Payment

Pull your adjusted gross income from line 11 of your most recent Form 1040.⁷ An official transcript is available at irs.gov if you do not have a copy handy.

Next, figure out your family size. Federal Student Aid counts you, a spouse, and any dependents who live with you and receive more than half their financial support from you.⁸ Then run the numbers:

Multiply the 2026 federal poverty level for your family size by 1.5. For a single borrower that is $15,960 × 1.5 = $23,940.⁴
Subtract that from your AGI to get your discretionary income.
Multiply discretionary income by 10 percent, or 15 percent if you are on original IBR with pre-2014 loans.
Divide by 12 for the monthly payment.

Log in at studentaid.gov to pull your loan summary, including principal and interest rate on each loan, and compare it against the calculation above. If you were on SAVE, expect the sharpest increase, because you are moving from the most generous formula in the system to one that protects less income and charges more of it.

1
Federal Student Aid. One Big Beautiful Bill Act Updates
2
Federal Student Aid. IDR Court Actions
3
U.S. Department of Education. GEN-25-04 Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
4
HHS ASPE. 2026 Poverty Guidelines 48 Contiguous States
5
U.S. Department of Education. Transforming Loan Repayment and Protecting Borrowers Through the New SAVE Plan
6
Federal Student Aid. Student Loan Forgiveness
7
Internal Revenue Service. Form 1040 – 2025 U.S. Individual Income Tax Return
8
Federal Student Aid. Who Is Included in the Family Size