Federal student loans changed more in 2026 than in any year since income-driven repayment began. Most of the changes come from the budget law signed on July 4, 2025 (Public Law 119-21), and took effect on July 1, 2026. The rest came from the court fight over the SAVE plan, which ended with SAVE being shut down.
Quick answer: New loans made from July 1, 2026 can only be repaid on a new standard plan (10–25 years) or the new Repayment Assistance Plan (RAP), which charges 1% to 10% of income. SAVE has ended, and PAYE and ICR close on July 1, 2028. Grad PLUS loans are gone for new graduate borrowers, and new caps on graduate and Parent PLUS borrowing apply. Rates for 2026–27 are 6.52% for undergraduates, 8.07% for graduate students and 9.07% for PLUS loans.
Timeline of the Changes
| Date | What changed |
|---|---|
| July 4, 2025 | Budget law signed. IBR’s “partial financial hardship” test removed immediately |
| December 2025 | Education Department agrees to end the SAVE plan to settle the Missouri lawsuit |
| January 1, 2026 | Tax exclusion for forgiven student loans narrows to death and disability discharges only; employer student loan help ($5,250) made permanent |
| March 2026 | Court enters the judgment ending SAVE |
| July 1, 2026 | RAP and the new standard plan launch; Grad PLUS ends for new borrowers; new graduate, professional and Parent PLUS limits; Workforce Pell Grants begin |
| July–September 2026 | SAVE borrowers get about 90 days from their servicer’s notice to choose a new plan |
| July 1, 2027 | Economic hardship and unemployment deferments end for new loans; forbearance on new loans capped at 9 months in any 24; defaulted loans can be rehabilitated twice instead of once |
| July 1, 2028 | PAYE and ICR end; remaining borrowers move to RAP or IBR |
Repayment Plans Now
| Plan | Payment | Forgiveness | Who can use it |
|---|---|---|---|
| RAP | 1%–10% of AGI, minus $50/month per dependent, $10 minimum | After 360 qualifying payments | All Direct Loan borrowers except Parent PLUS |
| Standard (new) | Fixed; term of 10, 15, 20 or 25 years based on balance | None | Anyone with a loan made on or after July 1, 2026 (covers all their Direct Loans) |
| IBR | 10% (or 15% for pre-2014 borrowers) of income above 150% of poverty line | 20 or 25 years | Loans made before July 1, 2026 |
| PAYE | 10% of income above 150% of poverty line | 20 years | Eligible pre-2026 borrowers, until July 1, 2028 |
| ICR | 20% of income above the poverty line | 25 years | Pre-2026 borrowers, until July 1, 2028; the only IDR route for consolidated Parent PLUS |
| Standard 10-year, graduated, extended | Fixed or rising | None | Loans made before July 1, 2026 |
| SAVE | — | — | Ended |
Once you receive any federal loan made on or after July 1, 2026, all your Direct Loans, including older ones, are limited to the new standard plan or RAP. The new standard plan’s term depends on your total federal balance: under $25,000, 10 years; $25,000–$49,999, 15 years; $50,000–$99,999, 20 years; $100,000 or more, 25 years. See income-driven repayment plans for how RAP and IBR compare.
Monthly Payment Comparison: $50,000 in Loans
Single borrower, no dependents, 2026–27 undergraduate rate of 6.52%. IBR uses 150% of the 2026 poverty guideline ($23,940).
| Plan | At $50,000 income | At $75,000 income | Total paid if not forgiven |
|---|---|---|---|
| RAP | $167 | $438 | Depends on future income; balance falls every month you pay |
| IBR (post-2014) | $217 | $426 | Depends on future income |
| Standard, 10 years (pre-2026 loans) | $568 | $568 | $68,190 |
| New standard, 20 years ($50,000 balance) | $373 | $373 | $89,610 |
A $50,000 balance puts a new borrower in the 20-year tier, which lowers the payment but adds more than $21,000 of interest compared with 10 years. Paying extra is allowed on every plan without penalty.
What Happened to SAVE
SAVE launched in 2023 with the lowest payments of any plan, but federal courts blocked it in 2024 and most enrollees spent more than a year in forbearance. In December 2025 the Education Department agreed with Missouri and other states to end the plan, and a court entered the judgment in March 2026. No one can enroll in SAVE now. From July 2026, servicers began notifying SAVE borrowers that they had about 90 days to choose another plan; borrowers who do not choose are placed in a standard plan.
If you were in SAVE: compare RAP and IBR in the Loan Simulator at studentaid.gov before your window closes. If you are working toward PSLF, pick an income-driven plan so your payments stay low and keep counting.
New Borrowing Limits
| Borrower | Limit from July 1, 2026 |
|---|---|
| Graduate student (unsubsidized) | $20,500 a year; $100,000 total for graduate study |
| Professional student (e.g. medicine, law) | $50,000 a year; $200,000 total |
| Grad PLUS | No longer available to new borrowers |
| Parent PLUS | $20,000 a year per student; $65,000 total per student |
| Lifetime cap for any student | $257,500 in federal loans (not counting Parent PLUS taken out for a child) |
Students who were enrolled and had a federal loan for their program as of June 30, 2026 keep the old limits for the lesser of three academic years or the time left in their program. Schools may also set lower limits for a program, and part-time students’ limits are reduced in proportion. See Grad PLUS loans and Parent PLUS loans.
Public Service Loan Forgiveness (PSLF)
| Requirement | Details |
|---|---|
| Qualifying payments | 120 monthly payments (10 years) |
| Qualifying employer | Government (federal, state, local, tribal) or a 501(c)(3) nonprofit, plus some other nonprofits |
| Qualifying plans | RAP, IBR, PAYE, ICR, or a 10-year standard plan |
| Amount forgiven | Entire remaining balance |
| Tax on forgiveness | Tax-free |
The 2025 law added RAP to the list of plans whose payments count. For the full requirements and application steps, see how to apply for PSLF.
Taxes on Forgiveness and Employer Help
- IDR forgiveness is taxable again. The exclusion that made all student loan forgiveness tax-free covered 2021 through 2025. From 2026, forgiveness at the end of RAP, IBR, PAYE or ICR counts as federal taxable income. PSLF forgiveness is excluded under a separate rule and stays tax-free.
- Death and disability discharges stay tax-free permanently, for federal and private student loans, as long as your Social Security number is on the return.
- Employer student loan repayment of up to $5,250 a year remains tax-free permanently, and the $5,250 cap will rise with inflation from 2027.
Current Federal Student Loan Interest Rates
| Loan Type | Rate (2026–27) | Origination Fee |
|---|---|---|
| Direct Subsidized and Unsubsidized (undergrad) | 6.52% | 1.057% |
| Direct Unsubsidized (graduate/professional) | 8.07% | 1.057% |
| Direct PLUS (parent, and graduate borrowers still eligible) | 9.07% | 4.228% |
Rates apply to loans first disbursed July 1, 2026 – June 30, 2027 and are fixed for the life of the loan. For comparison, the 2025–26 rates were 6.39%, 7.94% and 8.94%.
Pay Off vs Invest Decision Framework
| Situation | Usually | Reasoning |
|---|---|---|
| Loan rate above 7% | Pay off aggressively | A guaranteed 7%+ return is hard to beat |
| Loan rate 5–7% | Split the difference | Close call; depends on your risk tolerance |
| Loan rate below 5% | Invest the extra | Long-run stock returns have been higher, though not guaranteed |
| Working toward PSLF | Pay the required amount only | Extra payments reduce what gets forgiven tax-free |
| On RAP or IBR heading for forgiveness | Plan for the tax | Forgiven balances are taxable from 2026 |
Always take any employer 401(k) match first.
Key Action Items for Borrowers
| Action | Priority |
|---|---|
| If you were in SAVE, choose a new plan before your 90-day window ends | High |
| Compare RAP and IBR in the Loan Simulator (loans made before July 2026) | High |
| Submit PSLF employment certification each year if you work in public service | High |
| Graduate students starting after July 2026: plan for the $20,500 or $50,000 annual cap | High |
| Consolidated Parent PLUS on ICR: move to IBR before July 1, 2028 if you want to stay income-driven | Medium |
| Budget for tax on IDR forgiveness | Medium |
| Be cautious about refinancing federal loans | You lose RAP, PSLF and federal forbearance |
Bottom Line
The 2026 changes simplify the menu but make it less generous for many borrowers. RAP replaces SAVE as the main income-driven plan, graduate borrowing is capped, and forgiveness outside PSLF is taxable again. If you have loans from before July 2026, you still have more choices than new borrowers do, but PAYE and ICR are on a two-year clock. Run your own numbers before choosing a plan.
For related guides, see student loan forgiveness programs, federal repayment plans and is college worth it?.
Part of the student loan guide.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy