Changes Coming to Federal Student Loan Repayment

If you were enrolled in higher education in the last few decades, you know how expensive it has become to earn an undergraduate or advanced degree. Because of the expense and the fact that financial aid has not necessarily kept up, many students have relied heavily on student loans to acquire their college education. These days, it is not uncommon for students to leave college with 6-figures of student loan debt that often will stay with them for decades to come. This situation, along with increases in the cost of living for everyday items, has led to more and more people feeling like they are unable to do many of the things that prior generations found to be normal aspirations. Over the past 6 years, the Federal Student Loan landscape has seen major shifts, first with the Biden Administration seeking to streamline the payment and loan forgiveness process and now with the Trump Administration reversing much of what the prior administration sought to put in place. Since the COVID-19 pandemic in 2020 and the economic struggles so many Americans were facing, the normal order of student loan borrowers making regular payments has been upended, and there are many borrowers who have become accustomed to not making payments for upwards of 5 years. As much as Federal Student Loan borrowers probably relished the relief of not having to make payments due to the payment pause that was instituted, some may have lulled themselves into a false sense of security because that blanket pause has been over for quite some time now. During the pause, interest stopped accruing on Federal loans, but that is no longer the case for many borrowers, even if they haven’t been making payments. Because of the sweeping bill Congress passed in July of 2025 (commonly known as the One Big Beautiful Bill Act), substantial changes are coming for Federal Student Loan borrowers, which began on July 1, 2026. In this issue of the newsletter, we will provide an update on some of the changes and review options borrowers have to manage their Federal Student Loan debt.

The End of the SAVE Plan
Because of the financial strain that student loan payments create for borrowers, alternatives to the Standard Repayment Plan have become widely used, which are based on the amount of income you make.  These repayment plans allow for more affordable payments but unlike the 10 year forgiveness timeline of the Standard Repayment Plan, these Income Driven Repayment Plans (IDRs) require payments to be made for a longer time period to qualify for forgiveness. As a part of the prior presidential administration’s efforts to aid Federal Student Loan borrowers, a new IDR Plan known as the SAVE Plan, the short name for Saving on a Valuable Education, was created and was intended to provide relief to borrowers by reducing the percentage of income required for each payment, while allowing borrowers in that repayment plan to be eligible for loan forgiveness after 20 years on undergraduate debt or 25 years on graduate debt.  For borrowers with less than a $12,000 balance, forgiveness could be obtained in 10 years. Due to legal challenges that were filed shortly after the plan was started, most borrowers who were attempting to switch to that plan were held in limbo for a number of months, pending resolution of the legal challenges. Ultimately, the SAVE Plan was struck down during the current presidential administration, and the plan officially terminated on July 1, 2026. Those borrowers who were accepted into the plan and began making the lower payments should have already received notification of the termination of the plan and will be required to change to another repayment plan type by October 1, 2026. Borrowers who were in a pending status or had not yet begun making payments will also need to select a repayment plan moving forward.  As of now, the other three IDR Plans, Income Based Repayment (IBR), Paye As You Earn (PAYE), and Income Contingent Repayment (ICR) are still available to borrowers, along with a new plan, which we will cover next. The IBR and ICR Plans allow qualifying borrower’s loans to be forgiven after 25 years, and the PAYE Plan allows qualifying borrower’s loans to be forgiven after 20 years.  However, PAYE and ICR Plans will be phasing out over the next 2 years and will be fully eliminated by July 1, 2028. Until that time, borrowers enrolled in either of those repayment plans can continue in them. 

The New Repayment Assistance Plan (RAP)
With the termination of the SAVE Plan, a new IDR Plan, the Repayment Assistance Plan (RAP) has been established, beginning on July 1, 2026. Unlike its predecessors, the RAP Plan uses Adjusted Gross Income rather than Discretionary Income to determine the payment amount. The Discretionary Income formula reduces the amount of income counted towards repayment by a family size factor. While the RAP Plan uses Adjusted Gross Income to determine the payment amount, it does so using a sliding scale. For lower income borrowers, the RAP Plan may require a lower payment, whereas at higher income levels, the payments can be substantially higher than other IDRs.  Under the RAP Plan, there is a minimum monthly payment of $10, whereas it is possible to have a $0 monthly payment under other IDR Plans. Also, with the RAP Plan, it takes 30 years of payments to qualify for loan forgiveness. Additionally, for borrowers obtaining loans after July 1, 2026, only the Tiered Standard and RAP Payment plans will be available. The Tiered Standard Plan allows the borrower to make a lower payment than the regular Standard Plan, but it also extends the timeline for loan forgiveness from 10 years to as much as 25 years.

Choosing Your Repayment Approach
If you are a Federal Student Loan borrower who has had their loans for a while now, chances are you have selected an IDR Plan of some type and can continue in that plan, at least for another couple of years. If your goal is to pay as little as possible until qualifying for loan forgiveness, you should use available online resources like you can find at studentaid.gov to compare your repayment options and find the most favorable plan. Something to keep in mind about the forgiveness options with the IDR Plans is that any loan balance forgiven is considered taxable income for the year it is forgiven, so you should make your plans to have the additional tax covered for when you file your return the following year. That is contrary to how Public Service Loan Forgiveness (PSLF) is treated. Borrowers who qualify for PSLF, if they meet the criteria of having made the 120 qualifying payments while working in a covered public service job, have their loans forgiven without having to count the income on their taxes.  On the other hand, if you plan to pay the loan off prior to forgiveness, you may choose to use a non-Income Driven Repayment plan type that will accelerate the payoff to your desired end date. In today’s economic climate, with budgets often stretched to the limit, it is rare that people choose to pay any more than is required, which is why IDR Plans are the most widely used.

The landscape of Federal Student Loans is undergoing a significant shift, but as we have seen in recent years, there is no guarantee that another shift won’t come later, so you should maintain a posture that allows you to pivot when circumstances warrant. And, no matter what break is being offered, recognize that when you have incurred a debt, even if payment is not being demanded immediately, payment is expected. In the end, it is important to assess your own financial circumstances and do the necessary research to determine what approach is most beneficial to you, while staying tuned into the policy changes that may come in the future.