If you’re trying to figure out what’s next for student loans, the short version is this: the SAVE plan is being wound down, two repayment plans are replacing the old income-driven lineup, forgiven balances are taxable again on federal returns as of January 1, 2026, and involuntary collections on defaulted loans are temporarily paused while the Department of Education rolls out the One Big Beautiful Bill Act. Every one of those changes creates a decision you probably need to make in the next few months.
SAVE Is Ending. Don’t Wait It Out.
The Saving on a Valuable Education plan never fully launched. In February 2025 the Eighth Circuit Court of Appeals enjoined the entire plan, which also ended the 0 percent interest rate that had been protecting borrowers during earlier stages of the litigation.1U.S. Department of Education. U.S. Department of Education Announces Agreement with Missouri On December 9, 2025, the Department of Education and Missouri reached a settlement agreement to end SAVE entirely, stop new enrollments, deny pending applications, and move current enrollees into other plans. The settlement still requires court approval.2Federal Student Aid. IDR Court Actions
Meanwhile, SAVE borrowers sit in administrative forbearance because servicers cannot calculate payments under the injunction. Interest has been accruing on those loans since August 1, 2025.3Federal Student Aid. Changes to SAVE Administrative Forbearance On a $25,000 balance at 6.8 percent, that’s about $4.65 a day. Time spent in SAVE forbearance does not count toward PSLF or IDR forgiveness.
You can leave SAVE forbearance at any time by switching to an eligible repayment plan. The Loan Simulator at StudentAid.gov compares your options, which currently include Income-Based Repayment, Pay As You Earn, and Income-Contingent Repayment.3Federal Student Aid. Changes to SAVE Administrative Forbearance You can also make voluntary payments while in forbearance; those apply to outstanding interest first. Auto-pay is off during forbearance, so payments have to be made manually.
The Two Repayment Plans Replacing the Old Lineup
The One Big Beautiful Bill Act, signed on July 4, 2025, consolidates the old income-driven repayment plans into two: an updated Income-Based Repayment plan and a new Repayment Assistance Plan that launches July 1, 2026. The law also replaces the current Standard plan with a new tiered Standard plan.4Federal Student Aid. One Big Beautiful Bill Act Updates
Income-Based Repayment, Now Easier to Get Into
IBR no longer requires a “partial financial hardship.” The old test — that your IBR payment would be lower than your Standard payment — is gone, and IBR is now open to any eligible borrower. Parent PLUS borrowers can also access IBR if they first consolidate their parent PLUS loans into a Direct Consolidation Loan, enroll in Income-Contingent Repayment, and make at least one full ICR payment before switching.4Federal Student Aid. One Big Beautiful Bill Act Updates Monthly IBR payments remain capped at what you’d pay on a 10-year Standard plan.
The Repayment Assistance Plan Starting July 1, 2026
RAP uses a different formula than any prior income-driven plan. Instead of discretionary income (earnings above a poverty-line threshold), it bases payments on your total adjusted gross income. Borrowers earning $10,000 or less pay a flat $10 a month. For each $10,000 above that, the percentage climbs by one point, from 1 percent up to a maximum of 10 percent.5Congressional Research Service. The Repayment Assistance Plan (RAP) in P.L. 119-21 Forgiveness comes after 30 years, and qualifying payments count toward PSLF.6Office of the Law Revision Counsel. 20 USC 1087e – Terms and Conditions of Loans
For a lot of borrowers RAP is a worse deal than the plans it replaces. SAVE would have charged 5 percent of discretionary income for undergraduate loans with forgiveness at 20 years. RAP can charge up to 10 percent of total AGI and requires 30. If IBR or PAYE would give you a lower payment, run the numbers before you enroll in RAP.
PSLF: Still the Cleanest Path, Plus a Buyback Option
Public Service Loan Forgiveness remains the most direct route to tax-free forgiveness for government and nonprofit employees, and new final PSLF regulations take effect on July 1, 2026. The PSLF Help Tool is still the main way to generate employment certification forms, and digital signatures are now standard.
If you have 120 months of certified qualifying employment but not enough qualifying payments because some months were spent in deferment or forbearance, the PSLF buyback program lets you make a lump payment covering those gap months so they count toward your 120. The steps: certify any unreported qualifying employment, confirm the deferment or forbearance months you want to buy back have matching approved employment, and submit a request through PSLF Reconsideration selecting “PSLF Buyback.” If approved, you receive an agreement with the amount due and 90 days to pay it. You have to keep making regular loan payments while the request is under review.7Federal Student Aid. Public Service Loan Forgiveness (PSLF) Buyback
Your qualifying payment counts appear in the My Aid section of your StudentAid.gov account, with a qualifying payment bar and expected forgiveness date for each loan. If the counts look wrong, PSLF Reconsideration is the formal channel to dispute them.8Federal Student Aid. How to Manage Your Public Service Loan Forgiveness (PSLF) Progress on StudentAid.gov
Forgiven Debt Is Taxable Again
This is the change most borrowers haven’t priced in. The American Rescue Plan Act’s federal exclusion for forgiven student loan debt expired on January 1, 2026. If you reach time-based forgiveness under an income-driven plan after that date, the forgiven amount is treated as taxable income on your federal return.9NASFAA. Welcome to 2026: Some Student Loan Forgiveness Is Now Taxable On a $50,000 forgiven balance, that could mean a federal tax bill of $10,000 or more depending on your bracket.
Two carveouts matter. PSLF forgiveness stays completely tax-free. And the One Big Beautiful Bill Act permanently excluded loan discharges due to death or total and permanent disability from taxable income.9NASFAA. Welcome to 2026: Some Student Loan Forgiveness Is Now Taxable For everyone else counting down to 20-, 25-, or 30-year IDR forgiveness, the tax exemption is gone.
The Insolvency Exclusion
If you owe more than you own when your debt is forgiven, the insolvency exclusion can reduce or wipe out the tax. You qualify to the extent your total liabilities exceeded the fair market value of your assets immediately before the cancellation. You claim it on IRS Form 982, reporting the smaller of the canceled amount or the amount by which you were insolvent, and you also reduce certain tax attributes in Part II of the form.10IRS.gov. Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments Borrowers who’ve been on IDR for 20-plus years often carry more debt than assets, which is exactly the situation this exclusion is built for. A tax professional can run the calculation before the forgiven amount hits your return.
If You’re in Default
The 12-month repayment on-ramp ended on September 30, 2024.11National Credit Union Administration. Resumption of Federal Student Loan Payments Since then, missed payments can be reported to credit bureaus, and default (after roughly 270 days of non-payment) can trigger wage garnishment and seizure of federal tax refunds through the Treasury Offset Program.
In January 2026, the Department of Education announced it is temporarily delaying involuntary collections, including administrative wage garnishment and the Treasury Offset Program, while it implements the student loan provisions of the One Big Beautiful Bill Act. No resumption date has been announced.12U.S. Department of Education. U.S. Department of Education Delays Involuntary Collections The pause does not erase the default itself or stop credit reporting. It’s a window, not a cure.
Two paths get you out of default:
- Loan rehabilitation. Make nine on-time, voluntary payments within 10 consecutive months (one missed month is allowed). For Direct and FFEL loans, payments are based on what you can afford; Perkins Loan rehabilitation requires nine consecutive payments with no missed month. When you finish, the default notation is removed from your credit report.13Federal Student Aid. Student Loan Rehabilitation for Borrowers in Default: FAQs
- Consolidation. Consolidate the defaulted loan into a new Direct Consolidation Loan by either agreeing to repay under an income-driven plan or making three consecutive, voluntary, on-time payments first. If your wages are already being garnished under a court order, you can’t consolidate until the order is lifted. Reconsolidating a defaulted Direct Consolidation Loan requires including at least one other eligible loan in the new consolidation.14Federal Student Aid. Getting Out of Default
Rehabilitation is slower but removes the default from your credit history. Consolidation is faster and gets you back into repayment immediately, but the default stays on your record for up to seven years.
A Note on Scams
Every wave of policy change brings scammers, and the current confusion is fuel. It is illegal for any company to charge upfront fees before providing student loan debt relief services.15Federal Trade Commission (FTC). Student Loan Scammers Won’t Offer Relief Other red flags: claims of Department of Education affiliation, requests for your FSA ID, and pressure to “act now” for a forgiveness program. Applying for IDR, consolidating, certifying PSLF employment — every one of these is free at StudentAid.gov.
What to Do This Month
If you’re on SAVE, pick a new plan and get out of forbearance. Interest is compounding and the months aren’t counting toward anything. If you’re pursuing PSLF, confirm you’re on an eligible income-driven plan, submit an employment certification form, and check your qualifying payment counts. If you’re within a few years of IDR forgiveness, talk to a tax professional about the insolvency exclusion before the forgiven balance shows up on your return. If you’re in default, use the involuntary collections pause to start rehabilitation or consolidation before garnishment can resume. StudentAid.gov is the reliable place to track what changes next.