Trump and Federal Student Loans: SAVE Ends, PLUS Caps, PSLF

Trump-era changes to federal student loans now run through the One Big Beautiful Bill Act, signed July 4, 2025. The law ends the SAVE Plan, replaces most income-driven repayment options with a new Repayment Assistance Plan starting July 1, 2026, caps Parent PLUS borrowing, eliminates Graduate PLUS loans, and tightens Pell Grant eligibility. Public Service Loan Forgiveness survives. If you already hold federal student loans, some of these changes affect you immediately; others only bite if you take out a new loan on or after July 1, 2026.

The SAVE Plan Is Over

The Saving on a Valuable Education plan is gone. After the Eighth Circuit Court of Appeals ruled in February 2025 that SAVE was unlawful, a federal district court entered an injunction in April 2025, and the Trump administration declined to defend the plan.¹ The Department of Education is winding it down. About 7.5 million borrowers were enrolled when the plan collapsed.²

If you were on SAVE, pick a new repayment plan. If you don’t, your servicer will move you to one automatically.³ Interest that had been paused for SAVE borrowers started accruing again on August 1, 2025, though the Department did not assess it retroactively.¹

The New Repayment Assistance Plan

Starting no later than July 1, 2026, the Repayment Assistance Plan (RAP) becomes the only income-driven repayment option for anyone taking out a new federal loan on or after that date.⁴ It works differently from the plans it replaces.

Payments are calculated from total adjusted gross income, not discretionary income. Earlier plans excluded a poverty-line allowance before running the math, which produced lower bills for moderate earners.
The payment rate slides from 1% of AGI for borrowers earning up to $10,000 to 10% for borrowers earning above $100,000, rising one percentage point per additional $10,000 of income. Borrowers earning $10,000 or less pay a $10 monthly minimum.
Each dependent knocks $50 off the monthly payment, but the payment can never drop below $10.
Any remaining balance is forgiven after 360 monthly payments, which is 30 years. Older IDR plans forgave balances at 20 or 25 years.
Subsidized, Unsubsidized, existing Graduate PLUS, and Consolidation loans qualify. Parent PLUS loans do not.⁴

What Happens to IBR, ICR, and PAYE

If you already hold federal loans disbursed before July 1, 2026, and you don’t take out any new loans after that date, you can still enroll in the existing Income-Based Repayment, Income-Contingent Repayment, or Pay As You Earn plans. Take out a new loan after July 1, 2026, and you lose access to those legacy plans, even if you were previously enrolled.⁵

Borrowers currently on ICR, PAYE, or SAVE must move to a different plan (IBR, the standard plan, or RAP) by July 1, 2028. Miss that deadline and you get moved into RAP automatically.⁵

IBR itself was revised by the new law. You no longer need to demonstrate a partial financial hardship to enroll. The updated plan requires payments of 10 percent of discretionary income, with forgiveness after 20 years.⁶

Parent PLUS Caps and the End of Graduate PLUS

Parent PLUS loans now carry hard borrowing limits for the first time. Beginning with the 2026–2027 academic year, new Parent PLUS borrowers face an annual cap of $20,000 per student and a lifetime aggregate cap of $65,000 per student across all parents borrowing on that child’s behalf.⁷ Before this law, parents could borrow up to the full cost of attendance with no aggregate limit.

New Parent PLUS loans taken out after July 1, 2026 also cannot enter any income-driven repayment plan, including RAP. Those borrowers are limited to the standard repayment plan. Parents who already hold Parent PLUS loans disbursed before July 1, 2026 may keep borrowing under previous rules for up to three additional academic years, or until their child finishes the program, whichever comes first.

Graduate PLUS loans are eliminated for new borrowers.⁶ Graduate and professional students will rely on their standard Direct Unsubsidized Loan limits and whatever institutional or private financing fills the gap. Programs like law, medicine, and business, where total costs routinely run past federal lending limits, feel this change most sharply.

Pell Grants and Part-Time Enrollment

Annual loan limits for students enrolled less than full-time are reduced in proportion to enrollment intensity. Pell Grant eligibility also tightened. Starting in the 2026–2027 academic year, students with a Student Aid Index above twice the maximum Pell award (roughly $14,790 for that year) lose eligibility. Students whose scholarships already cover the full cost of attendance are also excluded from Pell.

Public Service Loan Forgiveness Still Exists

PSLF survived the overhaul. Congress never voted to abolish it, and the One Big Beautiful Bill Act expanded it in one respect: payments made under the new RAP now count toward the 120-payment requirement.⁶ The Department of Education published final PSLF program regulations set to take effect July 1, 2026.⁸ PSLF forgiveness remains excluded from taxable income, unlike forgiveness under income-driven repayment plans.

Borrower Defense Claims Are Harder Again

The One Big Beautiful Bill Act reinstated the 2019 Borrower Defense to Repayment rules as if they had never been amended during the Biden administration. Those rules apply to all loans originated before July 1, 2035.⁶

Under the reinstated rules, the legal standard remains preponderance of the evidence, but the substantive requirements are tougher. You have to show that your school made a substantial misrepresentation you relied on, that the school knew the information was false or acted with reckless disregard for its accuracy, and that you suffered financial harm beyond simply owing on the loan.⁹ If you’re considering a claim, expect to meet that higher bar.

Taxes on Forgiven Balances After 2025

The American Rescue Plan Act’s exclusion for forgiven student loan debt applied only to loans forgiven between December 31, 2020 and January 1, 2026.¹⁰ Starting in 2026, if your federal student loan balance is forgiven under an income-driven repayment plan, the forgiven amount is generally treated as cancellation of debt income on your federal return. A large forgiven balance can generate a tax bill in the tens of thousands of dollars.

Two exceptions matter. PSLF forgiveness remains tax-free. And if your total debts exceeded the fair market value of your assets at the time of forgiveness (you were insolvent), you can exclude some or all of the forgiven amount by filing IRS Form 982.¹⁰ Keep records of your financial situation on the date your debt is discharged; the IRS will want documentation if you claim the exclusion.

Some states impose their own income tax on forgiven debt, even in years the federal government offered an exclusion. Whether your state does depends on whether it conforms to the federal tax code on this point, and many do not.

Refinancing Into Private Loans Is Risky Right Now

Once you refinance a federal loan into a private loan, that debt is private permanently. You lose access to income-driven repayment, PSLF, federal deferment and forbearance options, and any future forgiveness Congress might create.

Refinancing can make sense for borrowers with high incomes, strong credit, and no interest in forgiveness programs, where the private rate genuinely beats the federal rate. For anyone on an IDR plan, working toward PSLF, or uncertain about future earnings, the federal protections are usually worth more than a modest rate reduction. With RAP launching, PSLF regulations changing, and IDR plans in transition, locking yourself out of federal options before the picture settles is a gamble most borrowers should skip.

The Department of Education Restructuring

In March 2025, Trump 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.”¹¹ Congress established the Department, so actually closing it requires legislation. The order directs the Secretary to downsize operations and shift responsibilities to states where existing law allows.

Federal loan servicing, forgiveness processing, and IDR income certification all run through the Department. The Department has said services, programs, and benefits must continue uninterrupted, but restructuring during a period of major program changes could affect processing times and servicer communication. If you’re waiting on PSLF certification, an IDR recertification, or a plan change, keep copies of everything you submit.

What to Do Now

Former SAVE Plan enrollees should pick a new repayment plan before a servicer picks one for them.³ Borrowers on ICR or PAYE have until July 1, 2028 to move to IBR, the standard plan, or RAP; there is no advantage to waiting if one of those plans already fits your budget.⁵

Parents planning to borrow for a child starting college in fall 2026 need to plan around the new $20,000 annual and $65,000 lifetime Parent PLUS caps and the loss of income-driven repayment for new PLUS borrowers. If tuition and fees run above the cap, decide now how you’ll cover the gap.

Anyone approaching IDR forgiveness should plan for the tax hit. With the ARPA exclusion expired, setting aside a small monthly amount in a dedicated savings account can prevent a shock when the 1099-C arrives.

1
U.S. Department of Education. U.S. Department of Education Continues to Improve Federal Student Loan Repayment Options, Addresses Illegal Biden Administration Actions
2
U.S. Department of Education. U.S. Department of Education Announces Next Steps for Borrowers Enrolled in the Unlawful SAVE Plan
3
Federal Student Aid. IDR Plan Court Actions: Impact on Borrowers
4
Congressional Research Service. The Repayment Assistance Plan (RAP) in P.L. 119-21
5
Federal Student Aid. One Big Beautiful Bill Act Updates
6
Federal Student Aid. GEN-25-04 Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
7
Federal Student Aid. One Big Beautiful Bill Act – Important Definitions
8
Federal Student Aid. Public Service Loan Forgiveness (PSLF) Help Tool
9
U.S. Department of Education. Summary of the 2019 Final Institutional Accountability Regulations
10
Taxpayer Advocate Service. What to Know about Student Loan Forgiveness and Your Taxes
11
The White House. Improving Education Outcomes by Empowering Parents, States, and Communities