Student Loan Overhaul: What Borrowers Need to Know About the SAVE Plan Changes and New Repayment Options

Borrowers, it’s about to be “pencils down” for federal student loans as we know them. In 2026, the Trump administration is making significant changes to a system that has been a political and financial point of contention for years. Beginning on July 1, if you have student loans or are planning to borrow for college, your repayment options will glance 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 approved 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. The One Big Lovely Bill Act (OBBBA) will also phase out other popular repayment plans.

These changes impact the nearly 43 million Americans who collectively owe about $1.6 trillion in federal student loans. 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, potentially damaging their credit scores.

The History of Federal Student Aid

For most of U.S. History, the federal government remained largely uninvolved in education aid. Though, after the Soviet Union launched Sputnik in 1957, lawmakers recognized education as a matter of national security. This led to the passage of the National Defense Education Act of 1958, signed by President Dwight D. Eisenhower, which expanded options for student borrowers throughout the 1960s under President Lyndon B. Johnson. The result was a dramatic increase in college attendance, more than doubling between 1960 and 1970.

The Rise of Student Loan Debt

Since those early days, the federal student loan program has grown significantly in size and complexity, adding various repayment and forgiveness options. Student loan debt is now the nation’s second-largest type of consumer debt, behind mortgages, accounting for 9% of the nation’s debt. The total amount owed has increased by 42% in just the last 12 years, reaching $1.6 trillion.

What’s Happening to the SAVE Plan?

Launched in 2023 after the Supreme Court struck down a Biden administration attempt to forgive up to $20,000 of student loan debt, the SAVE plan was an income-driven repayment (IDR) plan. It based monthly payments on income and family size, rather than solely on the amount owed. The plan capped monthly payments and offered forgiveness of any remaining balance after a set number of years.

The SAVE program quickly gained popularity, with over 4 million borrowers signing up by September 2023. It was praised for providing relief to those facing repayment after pandemic-era pauses. However, critics, like Senator Bill Cassidy, called it a “scheme” that shifted the burden to those who didn’t attend college or already repaid their loans.

Under the new settlement, the Department of Education will not enroll new borrowers in the SAVE plan, deny pending applications, and will move existing SAVE borrowers into legal repayment plans. The plan is expected to be fully shut down by 2028. Interest is already accruing again on many borrowers’ balances.

What Other Programs Are Being Eliminated?

The OBBBA also eliminates the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans. Borrowers currently enrolled in these programs, or in SAVE, may remain for now, but 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 a decision will be automatically moved into RAP.

What New Repayment Options Will Be Available?

The OBBBA creates two new core plans, applicable to loans taken out on or after July 1, 2026:

• Income-Based Repayment Plan (IBR): A revised version of the standard income-based plan, with a 10-year repayment term and fixed monthly payments.
• Repayment Assistance Plan (RAP): A new income-driven repayment plan with payments based on adjusted gross income (AGI). Minimum yearly payments will range from 1% to 10% of AGI, with a minimum of $10 per month ($120 per year) for those who qualify. Unpaid interest will be forgiven monthly, and loans may be forgiven after 30 years. A $50-per-child discount will also be offered.

Will Wage Garnishment Resume?

The Trump administration announced in December 2025 its intention to commence garnishing the wages of student loan borrowers in default in the new year. However, as of February 2026, the start date has been postponed indefinitely to allow the Department of Education to implement reforms.

What About Loan Forgiveness Programs?

Public Service Loan Forgiveness (PSLF) will remain in place. This program cancels remaining federal student loan balances for borrowers working full-time in qualifying government or nonprofit jobs after 10 years of qualifying payments. While the Trump administration cannot legally eliminate PSLF, it has narrowed eligibility, stating it will exclude employers with “substantial illegal purpose.”

Changes to Loan Amounts for New Borrowers

Changes are also coming for Parent PLUS loans and Graduate PLUS loans. Grad PLUS loans, which allowed students to borrow the full cost of tuition, will be eliminated. Most graduate students will be limited to $20,500 per year, while medical, law, and other professional school students will be capped at $50,000 per year. Parent PLUS borrowers will be allowed to borrow up to only $65,000 per child. The DOE suggests these changes will encourage schools to lower tuition, though concerns exist that they may exclude lower-income students.