In 2026, significant modifications to the federal student loan system are set to reshape how borrowers manage their debts. With changes spearheaded by Congress, the Department of Education, and the Trump administration, students and graduates are grappling with impending adjustments.
End of the SAVE Plan
One of the major shifts is the termination of the SAVE Plan, which was introduced during President Biden’s administration. In December, the U.S. Department of Education announced a proposed settlement to end this popular repayment plan. The SAVE Plan was widely recognized for its affordability and flexibility, offering low income borrowers payments as low as $0.
However, legal challenges prompted by Republican state attorneys general questioned the plan’s legality. Consequently, approximately 7 million borrowers currently enrolled in SAVE may need to transition to different repayment plans. This new arrangement is currently awaiting court approval.
Impact on Public Service Loan Forgiveness
Borrowers like Liz Kilty, an oncology nurse in Portland, Oregon, are now facing uncertainty regarding the Public Service Loan Forgiveness (PSLF) program. PSLF enables public service workers to erase their student debt after a decade of payments. Legal troubles surrounding the SAVE Plan have delayed the progress of these borrowers.
While PSLF is protected by Congress, changes effective July 1, 2026, may complicate eligibility. New regulations will exclude workers from certain government or nonprofit jobs based on loosely defined criteria regarding their employer’s activities.
Changes in Repayment Plans
The One Big Beautiful Bill Act (OBBBA) will also introduce alterations to existing repayment options. By mid-2028, both the Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans will be phased out. However, a new Income-Based Repayment (IBR) plan will remain available for borrowers.
Starting July 1, 2026, new repayment options will be introduced:
- Standard Plan: Borrowers will face a repayment period of 10 to 25 years based on their debt size.
- Repayment Assistance Plan (RAP): This option offers income-based payments and waives excess interest. It encourages repayment while extending forgiveness timeframes to 30 years.
New Borrowing Limits for Graduate Students
Graduate students will also feel the impact of new borrowing limits, effective July 1, 2026. The current grad PLUS program will be abolished, capping loans at $20,500 per year for graduate students.
This shift aims to curb excessive tuition fees, but many may find themselves short on funding. Students pursuing professional degrees, like medicine or law, will have a borrowing cap of $50,000 annually. Parents utilizing parent PLUS loans will see limits set at $65,000 per child.
The Alarm of Rising Default Rates
As these changes unfold, a significant number of borrowers are already struggling with their payments. Recent data reveals that about 12 million borrowers are either in default or delinquent on their loans.
With over 25% of federal loan holders facing payment challenges, experts warn of a possible “default cliff.” The Department of Education plans to resume wage garnishments for defaulted borrowers in early 2026, adding to the urgency of the situation.
As 2026 approaches, both the Trump administration and Congressional leaders are tasked with ensuring these sweeping changes benefit borrowers rather than exacerbate the ongoing student loan crisis.
