Federal Student Loans Are Changing in a Big Way. Here’s What Borrowers Need to Know to Minimize the Pain
Borrowers, it’s about to be “pencils down” for federal student loans as we know them. In 2026, the Trump administration is making big moves to upend a system that’s been a political and financial point of contention for years, and beginning on July 1, if you have student loans or are planning to borrow for college, your repayment options will look much different.
At the heart of the upheaval is the Department of Education (DOE) settlement to end President Joe Biden’s Saving on a Valuable Education (SAVE) repayment plan. If adopted by the court, it would end years of litigation from several states, which argue the Biden administration exceeded its authority, and effectively shutter the program. Under the One Big Beautiful Bill Act (OBBBA), other popular repayment plans will be phased out as well.
That’s big news for the nearly 43 million Americans who collectively owe about $1.6 trillion in federal student loans. The Department of Education’s Federal Student Aid (FSA) data center reports that as of June 2025, more than a quarter of student loan borrowers (10.3 million) had at least one loan in forbearance, and another 6 million were delinquent or facing default, adding damaged credit scores to their overall struggles.
Fueling the fire is the skyrocketing cost of tuition. According to U.S. News and World Report, the average in-state tuition and fees for a public college in the 2025–2026 school year is $11,371. For out-of-state students, the cost jumps to $25,415. Private-college tuition averages about $44,961 for this year, but as anyone hoping to attend a “brand-name” school knows, that number can easily double. To get in the door, attendees rely heavily on federal loans.
That reality is shifting. The SAVE and OBBBA changes are not tweaks but a complete overhaul, bringing criticism and praise from both sides of the aisle. On her website, Rep. Alexandria Ocasio-Cortez bluntly states, “If you are a college student, this bill will make it harder for you to finance your education.” Under Secretary of Education Nicholas Kent has an alternate take, saying in a statement, “The law is clear: If you take out a loan, you must pay it back,” adding that taxpayers shouldn’t bear the cost of “irresponsible student loan policies.”
Do you have a college student in your family? Change and uncertainty raise the stakes and stress levels in an already fraught situation, so we searched the web for the best information to give borrowers a clear picture of the changes that will go into effect on July 1, 2026. Read on to learn more about this complicated issue.
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Student loans boost college attendance
For most of our nation’s history, the federal government stayed out of education aid. But after the Soviet Union successfully launched Sputnik, the first Earth-orbiting satellite, in 1957, lawmakers realized education was a matter of national security. Congress quickly passed the landmark National Defense Education Act of 1958, which President Dwight D. Eisenhower signed into law. Throughout the 1960s, the law expanded under President Lyndon B. Johnson to include more options for student borrowers. The results were stark: From 1960 to 1970, the number of students attending college more than doubled.
Discovered on the U.S. Senate
The student loan industry is the second-largest debt driver
Since those early days, the federal student loan program has ballooned in size and complexity, adding various repayment and forgiveness options. And the industry itself is huge: Student loan debt is the nation’s second-largest type of consumer debt, behind mortgages, accounting for 9% of the nation’s debt. The $1.6 trillion figure cited above is an incredible 42% higher than it was just 12 years ago.
Discovered on Pew Research and Bankrate
The SAVE program was a second attempt at student loan forgiveness
Launched in 2023 after the Supreme Court struck down a Biden administration attempt to forgive up to $20,000 of student loan debt, SAVE is a type of income‑driven repayment (IDR) plan, meaning it bases monthly payments on income and family size, not just the amount owed. The plan capped monthly federal student loan payments based on a borrower’s income and forgave any remaining balance after a set number of years.
Discovered on The Guardian
The SAVE program was immediately popular … and controversial
The SAVE repayment program was popular out of the gate, with more than 4 million borrowers signing up by September 2023. It was praised by supporters for bringing meaningful relief to those facing looming debt repayments after pandemic-era pauses were set to expire. But critics, like Republican Sen. Bill Cassidy of Louisiana, called the plan a “scheme” that shifts the burden from borrowers to “those who decided not to go to college, paid their way or already responsibly paid off their loans.”
Discovered on CNBC
Low-income borrowers saw their payments drop to zero
Individual borrowers earning less than $32,800, or less than $67,500 for a family of four, saw their payments drop to zero dollars. Others saw their payments drop by half, from 10% of discretionary income to 5%. Plus, balances did not rise due to unpaid interest as long as borrowers made payments on time. Those who borrowed $12,000 or less would have their remaining balances forgiven after 10 years of payments.
Discovered at Kiplinger
With SAVE ending, borrowers could face higher payments
Around 7 million borrowers enrolled in SAVE will be moved to other repayment options over the next few years, with the Department of Education signaling that the plan will be fully shut down by 2028. These moves have created a confusing limbo: SAVE is technically still on the books but no longer functions as it once did—most notably, interest is starting to accrue again on many borrowers’ balances.
Discovered on NPR
Other federal student loan programs are also on the chopping block
The OBBBA eliminates two other popular income‑driven plans: Income‑Contingent Repayment (ICR) and Pay As You Earn (PAYE). Those already enrolled in these programs or in SAVE may remain for now, but they will be required to choose the standard Income-Based Repayment Plan (IBR) or a Repayment Assistance Plan (RAP) by July 1, 2028. Those who don’t make the decision will be automatically moved into RAP.
Discovered at Britannica Money
Two new repayment options will start in 2026
The OBBBA, signed into law in July 2025, creates two new core plans, which will apply to all loans taken out on or after July 1, 2026:
- Income-Based Repayment Plan (IBR): This is a revised version of the standard income-based plan, with a 10-year repayment term and fixed monthly payments.
- Repayment Assistance Plan (RAP): This is a new income‑driven repayment plan, with payments based on adjusted gross income (AGI). It sets up minimum yearly payments of 1% to 10% of your AGI, with $10 a month ($120 per year) being the lowest possible payment for those who qualify. Unpaid interest will be forgiven every month, and loans may be forgiven after 30 years. And if you have children, you’ll get a $50-per-child discount.
Discovered at Fidelity and the National Organization of Student Financial Aid Administrators
The government may garnish wages on unpaid loans
In December 2025, the Trump administration announced it would begin garnishing the wages of student loan borrowers in default in the new year. But as of February 2026, the start date has been postponed indefinitely to give borrowers more time and to allow the Department of Education to implement reforms. Wage garnishment had been paused in 2020 as a result of the COVID-19 pandemic, along with tax-return seizures and government-benefit withholding.
Discovered on PBS News
Loan forgiveness will still exist—with caveats
Public Service Loan Forgiveness (PSLF) is a federal program that cancels remaining federal student loan balances for borrowers who work full‑time in qualifying government or nonprofit jobs and make 10 years of qualifying payments. The Trump administration cannot legally eliminate PSLF, but it has narrowed eligibility, stating it will “exclude employers that participate in illegal activities such that they have a substantial illegal purpose.”
The Department of Education says the change was made to ensure that borrowers who receive PSLF have employers that truly contribute to public service and do not violate any laws. Detractors fear that ambiguous language opens the door for punishing those who aren’t in step with the administration’s politics.
Discovered on Business Insider
Loan amounts for new borrowers will change as well
Big changes are coming for Parent PLUS loans and Graduate PLUS loans. Formerly known as Parent Loans for Undergraduate Students, the program was eventually expanded to include graduate students. Now, Grad PLUS loans, which allowed students to borrow the full cost of tuition, will be eliminated. Most graduate students will be limited to loans of $20,500 per year, while medical, law and other professional school students will be capped at $50,000 per year.
Parent PLUS borrowers, who assume repayment obligations, will be allowed to borrow up to only $65,000 per child. The DOE says these changes are intended to encourage schools to lower tuition, but many have voiced concerns that the real outcome will be to exclude lower-income students from these programs.
Discovered on The Hill
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