Federal student loans under Trump look substantially different heading into 2026 than they did a year earlier. The SAVE Plan has been struck down in court, a new Repayment Assistance Plan is replacing older income-driven options for future borrowers, Public Service Loan Forgiveness eligibility rules are narrowing on July 1, 2026, and collections on defaulted loans have swung between restart and pause. If you have federal student debt, several of these changes require you to act, not just watch.
The SAVE Plan Is Gone: What to Do Now
On March 10, 2026, a federal court invalidated most of the July 2023 rule that created the Saving on a Valuable Education Plan. The ruling struck down SAVE’s payment formula, its interest subsidies, and its discharge provisions.1Federal Student Aid. IDR Court Actions
Borrowers who were enrolled in SAVE or had applied for it were placed in administrative forbearance. If you’re among them, you need to select a different repayment plan. If you don’t choose one, your loan servicer will move you to a default plan. Income-driven options still available include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE). The new Repayment Assistance Plan (RAP) becomes available July 1, 2026.1Federal Student Aid. IDR Court Actions
Time spent in SAVE-related forbearance does not count toward income-driven repayment forgiveness or PSLF. Borrowers who chose SAVE in good faith have lost months of qualifying-payment progress and now need to re-enroll in a less favorable plan, potentially recertifying income on an accelerated timeline.
The Repayment Assistance Plan (RAP)
The One Big Beautiful Bill Act created RAP, which becomes available July 1, 2026. For loans originated on or after that date, RAP will be the only income-driven option. Existing borrowers with older loans can opt into RAP, but borrowers with new loans won’t have access to IBR, PAYE, or ICR.2Congressional Research Service. The Repayment Assistance Plan (RAP) in P.L. 119-21
RAP works differently from prior income-driven plans in several ways:
- Monthly payments are based on total adjusted gross income, not discretionary income. Prior IDR plans subtracted 150% to 225% of the federal poverty level before calculating payments. RAP uses a sliding scale from 1% to 10% of AGI, with the percentage increasing by one point for every $10,000 in income. Borrowers earning $10,000 or less pay a flat $10 per month.
- Each dependent reduces the monthly payment by $50, though the payment can never drop below $10.
- Any remaining balance is forgiven after 360 monthly payments (30 years), regardless of whether the borrower holds undergraduate or graduate debt.
- When monthly payments don’t cover all accrued interest, the unpaid interest is not charged to the borrower for loans in negative amortization.
- Borrowers who repay less than $50 in monthly principal receive a matching principal reduction equal to the lesser of $50 or their total monthly payment minus the principal they already paid.
Parent PLUS Loans and consolidation loans that include a Parent PLUS Loan are not eligible for RAP.2Congressional Research Service. The Repayment Assistance Plan (RAP) in P.L. 119-21 The 30-year forgiveness window is longer than the 20- or 25-year periods under most prior plans, so lower-income borrowers will be in repayment longer before reaching forgiveness. The interest subsidy and matching principal provisions should prevent balances from growing for borrowers making consistent payments.
If you have dependents or a low income relative to your balance, run the numbers on RAP against IBR and ICR before committing. The $50-per-dependent reduction can meaningfully lower payments for some households.
PSLF Eligibility Is Narrowing on July 1, 2026
An executive order signed March 7, 2025, directed the Department of Education to revise PSLF regulations so that the definition of qualifying “public service” excludes organizations engaging in activities with a “substantial illegal purpose.” The order lists categories of conduct that would disqualify an employer, including facilitating violations of federal immigration law, supporting designated terrorist organizations, and engaging in patterns of illegal discrimination.3The White House. Restoring Public Service Loan Forgiveness
Final PSLF regulations reflecting these changes were published in late 2025 and take effect July 1, 2026. Payments already credited toward PSLF at previously qualifying employers would not be retroactively revoked. Borrowers at newly disqualified employers, though, would stop accruing credit going forward.
If you’re pursuing PSLF, verify your employer’s status under the new definitions well before July 2026. The 120-payment requirement itself hasn’t changed; what’s changed is which employers count.
Collections on Defaulted Loans: Restarted, Then Paused
After more than five years of suspended collections on defaulted federal student loans, the Department of Education restarted enforcement. The Treasury Offset Program, which intercepts federal tax refunds and other government payments to cover defaulted balances, resumed on May 5, 2025. The Department also began sending notices for administrative wage garnishment later that summer and authorized guaranty agencies to resume involuntary collections on FFEL Program loans.4U.S. Department of Education. U.S. Department of Education to Begin Federal Student Loan Collections
Then it shifted again. In January 2026, the administration announced an indefinite pause on collection of defaulted federal student loan debt, including through the Treasury Offset Program. The practical result is an uncertain enforcement landscape where collection activity could resume with relatively short notice.
The stakes of default are serious even during a pause. A federal student loan enters default after roughly 270 days without payment. Consequences include damage to credit reports that persists for seven years after the loan is paid off, loss of eligibility for additional federal student aid, and the eventual resumption of garnishment and offset. The federal government can garnish up to 15% of disposable wages through administrative wage garnishment without a court order.
If you’re in default, look into loan rehabilitation or consolidation now rather than waiting. Both can remove default status and restore access to repayment plans and forgiveness programs. Doing this before the next enforcement announcement is easier than doing it after.
Borrower Defense Claims After the One Big Beautiful Bill Act
The same legislation that created RAP also rolled back Biden-era borrower defense regulations. The One Big Beautiful Bill Act restored the Trump administration’s 2020 borrower defense rules and made them effective as if the Biden-era amendments had never existed, applying to all loans originated before July 1, 2035.5Federal Student Aid. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
If you believe your school defrauded you, the higher evidentiary standards apply. You need to demonstrate that the school knowingly made false statements or acted with reckless disregard for accuracy, and that you suffered specific financial harm as a result.6U.S. Department of Education. Summary of the 2019 Final Institutional Accountability Regulations Claims are still permitted, but successful outcomes require more documentation and a stronger factual case than would have been needed under the Biden-era version of the rule.
Interest Rates on Current Loans
Federal student loan interest rates are set annually using a formula tied to the 10-year Treasury note, with add-on percentages and caps established by statute.7Office of the Law Revision Counsel. United States Code Title 20 – 1087e Terms and Conditions of Loans For loans first disbursed between July 1, 2025, and June 30, 2026:
- Undergraduate Direct Loans (subsidized and unsubsidized): 6.39%, with a statutory cap of 8.25%
- Graduate and professional Direct Unsubsidized Loans: 7.94%, with a statutory cap of 9.50%
- Direct PLUS Loans (parent and graduate): 8.94%, with a statutory cap of 10.50%
These rates are fixed for the life of the loan once disbursed. The formula adds 2.05 percentage points to the Treasury note yield for undergraduate loans, 3.60 points for graduate loans, and 4.60 points for PLUS loans.8Federal Student Aid. Interest Rates for Direct Loans First Disbursed Between July 1, 2025 and June 30, 2026 No legislation has changed the formula, so rates will continue to fluctuate year to year based on Treasury yields.
The Privatization Question
Reports emerged in late 2025 that the administration was exploring options to sell the federal government’s roughly $1.6 trillion student loan portfolio to private financial firms. No formal proposal has been published, and the idea faces significant legal and practical obstacles. Federal student loans carry borrower protections that private lenders are not required to honor, including income-driven repayment plans, PSLF, disability discharge, and death discharge. Transferring loans to private ownership could strip those protections unless the sale terms explicitly preserved them.9Congresswoman Ayanna Pressley. Pressley, Warren, Sanders, Over 40 Lawmakers Urge Trump Administration to End Plans to Sell Federal Student Loan Portfolio
The distinction between federal and private loans matters enormously here. Federal loans offer income-driven repayment, forgiveness programs, deferment and forbearance options, and discharge upon death or total disability. Private loans generally offer none of these. Discharging private student loans in bankruptcy requires proving “undue hardship,” a standard that courts have interpreted so strictly that few borrowers ever meet it.
The same warning applies to voluntary refinancing. If you refinance federal loans with a private lender, the decision is irreversible: you permanently lose access to every federal protection, repayment plan, and forgiveness program. Weigh a lower rate against those protections carefully before signing.
Is the Department of Education Being Closed?
On March 20, 2025, the president signed an executive order directing the Secretary of Education to “take all necessary steps to facilitate the closure of the Department of Education and return authority over education to the States and local communities.”10The White House. Improving Education Outcomes by Empowering Parents, States, and Communities The order requires implementation “consistent with applicable law,” which is a real limitation. Federal student aid programs are authorized by the Higher Education Act, which assigns responsibility for administering those programs to the Secretary of Education. Eliminating federal student lending would require Congress to repeal or substantially amend that Act.11National Association of Student Financial Aid Administrators. Potential Elimination of the Department of Education and Its Impact on Federal Student Aid
No such legislation has been enacted. Borrowers continue to receive and repay loans through the existing federal system, and there is no current mechanism for federal student debt to simply disappear because of the executive order.
What to Do This Year
The immediate action items depend on your situation. If you were on SAVE, pick a new repayment plan now rather than letting your servicer default you into one. If you’re pursuing PSLF, confirm your employer still qualifies under the rules taking effect July 1, 2026. If you’re in default, start rehabilitation or consolidation before collections restart again. If you’re comparing repayment plans starting mid-2026, run RAP against IBR and ICR side by side, particularly if you have dependents. And if a private lender is pitching you a refinance of federal loans, treat the loss of federal protections as the real cost of that decision.