Navigating New Student Loan Repayment Plans: What Borrowers Need to Know

The landscape of student loan repayment is shifting, and understanding these changes is key for borrowers. New rules are coming into play that will affect how loans are paid back, especially for those taking out new loans or looking at different repayment options. This guide breaks down what you need to know about the new student loan repayment plans and how they might impact your financial future.

Key Takeaways

• Starting July 1, 2026, new federal student loans will have limited repayment options: a new Standard Plan and a Repayment Assistance Plan (RAP).

• The RAP plan is an income-driven option with payments based on adjusted gross income (1-10%) and a 30-year forgiveness timeline.

• Current borrowers can stay on existing plans like SAVE, PAYE, and ICR until July 1, 2028, but will then be moved to IBR or RAP.

• Parent PLUS borrowers taking out new loans after July 1, 2026, are only eligible for the new Standard Plan.

• Borrowers who have debt forgiven after December 31, 2025, may face a federal tax bill, as the tax exclusion for cancelled debt expires.

Understanding the New Standard Repayment Plan

Fixed Payment Terms Based on Loan Balance

Starting July 1, 2026, if you're a new borrower or consolidate your loans after this date, your repayment options will change. The new Standard Repayment Plan offers fixed monthly payments, but the length of your repayment term will depend on how much you owe when you first enter repayment. This means your payment amount and the total time you'll be paying will be set based on your initial loan balance.

Here's a breakdown of the repayment terms:

Loan Balance	Fixed Repayment Term
Up to $25,000	10 years
$25,000 - $50,000	15 years
$50,000 - $100,000	20 years
$100,000 +	25 years

No Pre-Payment Penalties

One thing that hasn't changed is that you can still pay off your loans faster if you have the means. The new Standard Repayment Plan does not include any penalties for making extra payments or paying off your loan balance ahead of schedule. This flexibility can help you save money on interest over the life of your loan.

Availability for New and Current Borrowers

This new version of the Standard Repayment Plan is specifically for borrowers who take out new federal student loans on or after July 1, 2026, or who consolidate their existing loans on or after that date. If you have federal student loans already and do not take out any new ones or consolidate after July 1, 2026, you can continue to use the existing Standard Repayment Plan. It's important to know which category you fall into to understand your available repayment options.

The Repayment Assistance Plan (RAP) Explained

Income-Based Payment Structure

The Repayment Assistance Plan (RAP) is a new income-driven repayment option designed to make monthly payments more manageable for borrowers. Under RAP, your monthly payment is calculated as a percentage of your Adjusted Gross Income (AGI). This means your payment will fluctuate based on your earnings. Generally, payments will range from 1% to 10% of your AGI. It's important to note that there's a minimum monthly payment of $10 for all borrowers, regardless of income. This differs from some previous plans where very low-income borrowers could have a $0 payment.

Minimum Monthly Payments and Dependent Adjustments

As mentioned, the RAP plan sets a minimum monthly payment of $10. A key feature of RAP is its adjustment for dependents. For each dependent child in your household, your monthly payment is reduced by $50. This adjustment is applied after the AGI percentage is calculated. For married borrowers filing separately, their spouse's income and any dependents claimed by the spouse are excluded from this calculation.

Extended Forgiveness Timeline

One significant change with the RAP plan is the extended timeline for loan forgiveness. While previous income-driven repayment plans typically offered forgiveness after 20 or 25 years of payments, RAP requires borrowers to make payments for 30 years before any remaining balance can be forgiven. This longer period means borrowers will be in repayment for a longer duration.

Interest Waiver Policy

Similar to some other income-driven plans, RAP includes an interest waiver policy. If your calculated monthly payment doesn't cover the full amount of interest that accrues on your loan during that month, the remaining interest will be waived. This means that your loan balance won't grow due to unpaid interest while you are on the RAP plan, provided you make your required monthly payment. This helps prevent the capitalization of unpaid interest, which can increase the total amount owed over time.

Impact on Existing Repayment Plans

For those already managing federal student loans, the upcoming changes mean a significant shift in how repayment plans will function, especially for those currently enrolled in income-driven repayment (IDR) options. It's important to understand how these transitions might affect your current situation.

Transition for Current SAVE, PAYE, and ICR Enrollees

If you're currently on the Saving on a Valuable Education (SAVE), Pay As You Earn (PAYE), or Income Contingent Repayment (ICR) plans, you can stay on them for a while longer. However, this grace period has an end date. By July 1, 2028, all borrowers on these plans will be transitioned to either the new Repayment Assistance Plan (RAP) or the Income-Based Repayment (IBR) plan. If you take out any new loans or consolidate your existing ones after July 1, 2026, you'll be treated as a new borrower and will only have access to the new standard plan or RAP.

Sunset of Certain Income-Driven Repayment Options

Several existing income-driven repayment plans are being phased out. Specifically, the PAYE and ICR plans will no longer be available after July 1, 2028. This means that even if you are currently enrolled in one of these plans, you will need to move to a different option by that date. The SAVE plan also faces changes, with interest charges resuming for some borrowers.

Eligibility for IBR for Current Borrowers

The Income-Based Repayment (IBR) plan will remain an option for current borrowers. Unlike PAYE and ICR, IBR is not scheduled to sunset after July 1, 2028. This could make it a more stable choice for some, though it's worth noting that IBR payments might be higher than those under SAVE or PAYE. Borrowers who do not actively choose a new plan by the July 1, 2028 deadline will be automatically placed into either RAP or, if ineligible for RAP, IBR. It's advisable to make an informed choice before this automatic transition occurs.

Here's a look at how current plans are affected:

• SAVE, PAYE, ICR: Available until July 1, 2028. After this date, borrowers will be moved to RAP or IBR.

• New Loans/Consolidation after July 1, 2026: Borrowers taking out new loans or consolidating after this date will only have access to the new standard plan or RAP, regardless of their previous plan enrollment.

• IBR: Remains available for current borrowers, but payments may be higher than other IDR plans.

It is critical for current borrowers to review their repayment strategy and understand the implications of these changes. Proactive planning can help avoid unexpected payment increases or less favorable repayment terms.

Specific Considerations for Parent PLUS Borrowers

Parent PLUS loans have always been a bit different, and the new rules continue that trend. If you're a parent who took out PLUS loans for your child's education after July 1, 2026, you're now limited to the new standard repayment plan. This means you won't be able to use income-driven repayment options like the Repayment Assistance Plan (RAP). It's a significant change from before, when parents had more flexibility.

Ineligibility for RAP for New Parent PLUS Loans

For those borrowing Parent PLUS loans for the first time after the July 1, 2026, cutoff, the options are quite restricted. You're automatically placed on the new standard repayment plan. This plan has fixed payments over a set period, typically 10 years, and doesn't adjust based on your income. If you have a mix of Parent PLUS loans and other Direct Loans, you might be able to repay them separately, with the Parent PLUS loans on the standard plan and other loans on RAP if you're eligible.

Options for Current Parent PLUS Borrowers

If you took out Parent PLUS loans before July 1, 2026, you have a bit more breathing room. You can stay on your current repayment plan, like SAVE, PAYE, or ICR, until July 1, 2028. After that date, you'll need to switch to either the new standard plan or the IBR plan. However, if you take out any new loans or consolidate your existing loans after July 1, 2026, you'll be treated as a new borrower and will only have access to the new standard plan or RAP.

Impact of Consolidation on Eligibility

Consolidating your Parent PLUS loans before July 1, 2026, can be a strategic move if you want to access income-driven repayment options. Specifically, consolidating before this date allows current Parent PLUS borrowers to enroll in the Income-Contingent Repayment (ICR) plan. Keep in mind that after July 1, 2028, even if you consolidate into ICR, you'll likely be moved into the Income-Based Repayment (IBR) plan. Borrowers who consolidate their Parent PLUS loans after July 1, 2026, will be subject to the same restrictions as new borrowers, meaning they'll only be eligible for the new standard repayment plan. It's important to understand these deadlines to preserve your repayment options.

The key takeaway for Parent PLUS borrowers is the date: July 1, 2026. Loans taken out before this date offer more flexibility, while loans taken out after significantly limit your repayment choices, pushing you towards the standard plan.

Changes Affecting Public Service Loan Forgiveness

RAP as the Sole Option for New Borrowers

For those taking out federal student loans after July 1, 2027, the Repayment Assistance Plan (RAP) will become the only income-driven repayment option available. This means that newer borrowers will not have access to other income-driven plans that might have offered different terms or forgiveness timelines in the past. It's important for new borrowers to understand the specifics of the RAP, including its payment structure and forgiveness schedule, as it will be their primary pathway to managing their student debt.

Potential Impact of Loan Consolidation

Consolidating federal student loans can sometimes reset the clock on qualifying payments for programs like Public Service Loan Forgiveness (PSLF) and other income-driven repayment plans. This means that if you consolidate your loans, especially after July 1, 2026, you might lose credit for payments you've already made towards forgiveness. Borrowers should carefully consider their individual financial situation and repayment goals before deciding to consolidate, as it could affect their eligibility for PSLF or extend the time it takes to reach forgiveness under other plans.

Borrowers should be aware that consolidating loans can impact their progress toward forgiveness under PSLF and other income-driven repayment plans. It's advisable to assess personal financial circumstances before proceeding with consolidation.

Navigating Tax Implications of Loan Forgiveness

Expiration of Federal Tax Exclusion for Cancelled Debt

It's important to understand how student loan forgiveness might affect your taxes. For a period, Congress made forgiven student loan debt tax-free at the federal level. This was thanks to the American Rescue Plan Act, which was in effect until December 31, 2025. Many states also followed suit, meaning you wouldn't owe state taxes on forgiven amounts either. However, a recent legislative change means this federal tax protection is ending, with a few exceptions.

Potential Tax Bills for Borrowers After 2025

Starting January 1, 2026, if your student loans are forgiven under most income-driven repayment (IDR) plans, that forgiven amount could be treated as taxable income. This means you might receive a significant tax bill from the federal government. The amount of tax you owe would depend on your income bracket and how much debt was forgiven. It’s a good idea to start thinking about this now. You might consider adjusting your tax withholding or making estimated tax payments throughout the year to prepare for this possibility. This change doesn't affect forgiveness through programs like Public Service Loan Forgiveness (PSLF) or certain discharges due to death or disability, which remain tax-free.

Exceptions for Death or Disability Discharges

While the general tax exclusion for forgiven student loan debt is expiring, there are specific situations where forgiveness is still not considered taxable income. These exceptions primarily apply to loan cancellations that occur because of a borrower's death or a permanent disability. These specific types of discharges are not impacted by the expiration of the broader tax-free provision and will continue to be treated as non-taxable events. For other types of forgiveness, however, borrowers should plan for potential tax consequences after 2025.

Borrowers should be aware that while the SAVE plan offered temporary tax relief on forgiven debt, its discontinuation means that future forgiveness under other IDR plans could trigger a tax liability. Planning ahead is key to managing any unexpected tax obligations.

Reduced Protections for Borrowers Facing Hardship

Ineligibility for Unemployment and Economic Hardship Deferments

Starting July 1, 2027, borrowers who take out new federal student loans will no longer have access to unemployment and economic hardship deferments. These deferments previously allowed borrowers to temporarily pause their loan payments, sometimes for up to three years, during periods of significant financial distress. This change means that if you encounter job loss or severe economic difficulties after this date, you won't be able to use these specific deferment options to manage your payments.

Limitations on Forbearance Periods

Another significant change affects forbearance, which allows borrowers to temporarily stop or reduce payments. Under the new rules, the total time a borrower can remain in forbearance is limited to a maximum of nine months within any two-year period. This is a substantial reduction from previous allowances, which could be much longer. This restriction means that if you face financial challenges, you'll have a much shorter window to pause payments before potentially facing more serious consequences.

Increased Risk of Delinquency and Default

With fewer options to pause or adjust payments during tough times, borrowers face a greater risk of falling behind on their loans. The combination of higher payments for many and these reduced protections could lead to an increase in delinquency and, ultimately, default. It's important for borrowers to understand these changes and plan accordingly, perhaps by exploring options for faster payoff if possible, or by carefully budgeting to avoid missing payments. For those who do find themselves in default after July 1, 2026, consolidating a defaulted loan will make them ineligible for certain income-driven repayment options that are available to current borrowers.

Borrowers should be aware that these changes significantly alter the safety net that previously existed for those experiencing financial difficulties. Proactive financial planning and understanding the new limitations are key to avoiding negative impacts on your credit and loan status.

New rules mean it's harder for people with money problems to get help with their loans. These changes might leave borrowers in tough spots without the support they need. If you're worried about your loans, it's important to understand your options. Visit our website to learn more about how we can help you navigate these changes.

Looking Ahead: What Borrowers Should Keep in Mind

The student loan landscape is changing, and understanding these new repayment plans is key. For those taking out new loans after July 1, 2026, the options will be limited to a new standard plan or the Repayment Assistance Plan (RAP). Current borrowers have a bit more time, but will eventually need to transition to either the Income-Based Repayment (IBR) plan or RAP by July 1, 2028, if they don't take out new loans. It's a lot to sort through, and staying informed about these updates will help you make the best choices for your financial future. Keep an eye out for more information as the Department of Education rolls out these changes.

Frequently Asked Questions

What happens to my current student loan repayment plan if I take out new loans after July 1, 2026?

If you take out any new federal student loans, including a consolidation loan, after July 1, 2026, you will lose access to most current repayment plans like SAVE, PAYE, and ICR. You will only be able to choose between the new standard repayment plan or the new Repayment Assistance Plan (RAP).

Are Parent PLUS borrowers affected by these changes?

Yes, Parent PLUS borrowers who take out new loans after July 1, 2026, will only be eligible for the new standard repayment plan. Parent PLUS borrowers with loans taken out before this date can still access plans like IBR if they consolidate their loans before July 1, 2026, but they may be moved to other plans later.

What is the Repayment Assistance Plan (RAP)?

The RAP is a new income-driven repayment option. Your monthly payment is based on a percentage of your income, ranging from 1% to 10%, and payments can be reduced by $50 per dependent child. It has a longer repayment period of 30 years before any remaining balance is forgiven, and unpaid interest is waived.

Will student loan forgiveness be taxed under the new rules?

Currently, forgiven student loan debt is not taxed until the end of 2025. However, the new law does not extend this tax protection. This means that after January 1, 2026, borrowers who have their loans forgiven under most income-driven repayment plans could face a significant tax bill on the forgiven amount, unless the forgiveness is due to death or disability.

What happens to borrowers currently enrolled in plans like SAVE or PAYE?

If you are currently in plans like SAVE, PAYE, or ICR, you can stay in them until July 1, 2028. After that date, you will be moved into either the Income-Based Repayment (IBR) plan or the new RAP plan. If you take out new loans after July 1, 2026, you will be treated as a new borrower and will only have the new standard or RAP options.

Are there fewer protections for borrowers facing financial hardship?

Yes, the new rules reduce protections for borrowers who experience financial difficulties. For instance, unemployment and economic hardship deferments will no longer be available for new loans after July 1, 2027. Also, forbearance periods are limited to a maximum of nine months within any two-year period, which could increase the risk of borrowers falling behind on their payments.