Federal Student Loan Policy Changes: What Borrowers Need to Know

Why Federal Student Loan Policies Change

Federal student loan policies are not static. They are shaped by legislation and legal challenges, and they change in response to economic conditions and government priorities. The policies that govern your loans can affect your monthly payment, interest charges, and options for forgiveness.

Borrowers in 2026 face a particularly significant set of changes. New laws have eliminated some existing repayment plans, created new ones, and altered borrowing limits. These updates are not just administrative; they can have a direct impact on your financial planning, whether you are in school, repaying loans, or considering future borrowing.

• Policies change through laws passed by Congress and actions by the Department of Education.
• Legal rulings can also force policy reversals, as seen with the SAVE plan.
• Staying informed helps you make better decisions about repayment and borrowing.

Timeline of Recent Federal Student Loan Policy Changes

Several key changes to federal student loans are taking effect between 2026 and 2028. This timeline highlights the most impactful dates for borrowers.

• July 1, 2026: The SAVE plan is eliminated. The new Repayment Assistance Plan (RAP) and Tiered Standard Plan become available. The Graduate PLUS loan program is discontinued for new borrowers, and new borrowing limits for graduate and professional students and Parent PLUS loans begin.
• September 30, 2026: Deadline to enroll in auto pay to benefit from the 1% interest rate reduction, which starts July 1, 2026 and runs through June 30, 2028.
• July 1, 2027: New federal student loans will no longer be eligible for economic hardship or unemployment deferments.
• July 1, 2028: Existing income-driven repayment plans (PAYE and ICR) are terminated. IBR remains available only for loans disbursed before July 1, 2026.

Sources: U.S. Department of Education, The College of New Jersey

The End of the SAVE Plan and What It Means for Borrowers

The SAVE plan has been declared unlawful and is being eliminated. The Department of Education is issuing guidance to all 7.5 million borrowers enrolled in the plan to transition to a legal repayment plan.

Starting July 1, 2026, loan servicers will begin notifying SAVE Plan borrowers to exit the plan and enroll in a legal repayment plan within a 90-day period. If you do not enroll in a new plan within that window, you will be automatically enrolled in either the Standard Repayment Plan or the new Tiered Standard Plan.

You do not need to wait for your servicer's notice. You can begin enrolling in a new legal repayment plan before your 90-day notice arrives by contacting your servicer directly. This proactive step can help you avoid a plan you did not choose.

• 7.5 million borrowers are currently in the SAVE plan and must choose a new plan.
• If you do nothing, you may be placed in a standard plan, which could result in higher monthly payments.
• Acting early gives you control over your repayment options.

Sources: U.S. Department of Education

New Income-Driven Repayment: The Repayment Assistance Plan (RAP)

The Working Families Tax Cuts Act created a new income-driven repayment plan called the Repayment Assistance Plan (RAP), available to borrowers on July 1, 2026. RAP is designed to calculate monthly payments based on income and family size, similar to existing income-driven plans.

Unlike earlier IDR plans, RAP aims to prevent interest from ballooning and helps borrowers reduce their principal balance. The Department of Education states that borrowers who make full, on-time monthly payments will be shielded from runaway interest and make progress toward reducing principal.

According to the Department of Education, RAP calculates monthly payments based on income and number of dependents. A separate analysis by TICAS, cited by The College of New Jersey, suggests that payments are based on a percentage of total adjusted gross income (1–10%), reduced by $50 per month per dependent child, with a minimum payment of $10 per month. It also indicates that RAP includes a matching principal payment to ensure principal declines by at least $50 per month and that any remaining balance is discharged after 360 payments (30 years). These details have not been confirmed in official Department of Education press releases and should be verified with official regulations.

• Effective date: July 1, 2026
• Payment based on income and number of dependents
• Borrowers who make full, on-time payments are shielded from runaway interest and make progress toward reducing principal

Sources: U.S. Department of Education, The College of New Jersey

How the Tiered Standard Repayment Plan Works

Alongside RAP, the new Tiered Standard Plan offers a fixed-payment alternative for borrowers who prefer not to have an income-based plan. The plan provides fixed repayment terms of 10, 15, 20, or 25 years, with the specific term determined by the borrower's total outstanding loan balance.

Unlike income-driven plans, the Tiered Standard Plan does not adjust payments based on income. Instead, you pay a fixed amount each month for the length of your chosen term. This structure can be beneficial if you have a steady income and want predictable payments and a clear payoff date.

If a SAVE plan borrower does not select a plan during the 90-day transition window, they will be automatically placed in either the Standard Repayment Plan or this new Tiered Standard Plan. Borrowers should be aware that these standard plans may result in higher monthly payments compared to income-driven options, especially if their loan balance is high.

• Fixed repayment terms: 10, 15, 20, or 25 years
• Term length depends on the total loan balance
• No income-based payment calculation
• A potential default option for SAVE borrowers

Sources: U.S. Department of Education, The College of New Jersey

Changes to Loan Forgiveness and Taxability

Borrowers who are pursuing loan forgiveness should be aware of significant changes that will affect both eligibility and tax consequences.

According to The College of New Jersey, Parent PLUS loans issued on or after July 1, 2026, will not be eligible for the Repayment Assistance Plan (RAP). Because eligibility for Public Service Loan Forgiveness (PSLF) typically requires enrollment in an income-driven repayment plan, new Parent PLUS borrowers may have no pathway to PSLF. However, this information may not reflect definitive official policy, so borrowers should confirm current PSLF and RAP eligibility rules with the Department of Education or their loan servicer.

The tax exemption for forgiven student loan debt may have ended. The American Rescue Plan Act's tax exclusion for forgiven student loans applied to discharges through the end of 2025. For forgiveness received in 2026 or later, the forgiven amount may be treated as taxable income unless another exemption applies. Borrowers should consult a tax professional to understand their situation.

According to The College of New Jersey, existing Parent PLUS borrowers may still access an income-driven repayment plan by consolidating their loans into a Direct Consolidation Loan before July 1, 2026, and then enrolling in an income-based repayment plan before July 1, 2028. These deadlines should be confirmed with the Department of Education or your loan servicer before acting.

Borrowers with older loans who are in income-driven plans like PAYE, ICR, or IBR should also note these plans are being phased out. PAYE and ICR will terminate as of July 1, 2028, and IBR will only be available for loans that were first disbursed before July 1, 2026.

• New Parent PLUS loans (on or after July 1, 2026) may not be eligible for PSLF, according to TCNJ.
• Loan forgiveness received in 2026 or later may be taxable.
• Existing Parent PLUS borrowers may consolidate before July 1, 2026, to retain access to IDR plans, according to TCNJ.
• PAYE and ICR plans end on July 1, 2028; IBR is only available for loans taken out before July 1, 2026.

Sources: The College of New Jersey

Impact on Borrowers in School, Repayment, and Default

The policy changes affect different groups of borrowers in distinct ways. Whether you are currently repaying loans, still in school, or behind on payments, the following points summarize how these changes may apply to you.

• Borrowers in repayment: If you are on the SAVE plan, you will need to choose a new plan by the deadline. If you have older loans (disbursed before July 1, 2026), you may still access existing repayment plans such as ICR, PAYE, and IBR until July 1, 2028. If you have any loans taken out on or after July 1, 2026, your only repayment options will be the standard plan and RAP.
• Borrowers in school: New graduate and professional student borrowers will see higher annual and aggregate loan limits ( $20,500 annual / $100,000 aggregate for graduate; $50,000 annual / $200,000 aggregate for professional). Students enrolled less than half-time will have their loan eligibility reduced proportionally. The Graduate PLUS loan program is eliminated for new borrowers.
• Borrowers in default or facing hardship: New loans taken out on or after July 1, 2027, will not be eligible for economic hardship or unemployment deferments. Additionally, new federal student loans will have forbearance limited to a maximum of nine months within a two-year period. These restrictions could affect your ability to temporarily pause payments.

Sources: Purdue Global, The College of New Jersey

Interest Rate Reduction for Auto Pay Enrollees

The Department of Education has announced a temporary interest rate reduction to encourage on-time payments. Borrowers who enroll in auto pay before September 30, 2026, will receive a 1% interest rate reduction on their federal Direct Loans. This benefit will be available from July 1, 2026, through June 30, 2028.

To take advantage of this reduction, you must contact your loan servicer and set up automatic payments. The 1% reduction can lower your overall repayment cost over the two-year period.

• 1% interest rate reduction for auto pay enrollees
• Effective July 1, 2026, through June 30, 2028
• You must enroll by September 30, 2026

Sources: U.S. Department of Education

Steps to Stay Informed About Policy Changes

Federal student loan policies are complex and can change rapidly. Staying informed is essential to managing your loans effectively. Here are practical steps you can take.

• Monitor official U.S. Department of Education announcements at ed.gov for press releases and fact sheets.
• Check your email and mail from your loan servicer regularly for important notices about your specific loans.
• Review your loan servicer's website for updates on the SAVE plan transition deadlines and options.
• If you have questions, contact your loan servicer directly to discuss your repayment plan options.
• Consult reputable financial aid offices at colleges and universities for analyses of how new laws affect borrowers.

Sources: U.S. Department of Education, Purdue Global, The College of New Jersey