Terry Savage: Upcoming Changes to Student Loan Repayment Plans

Understanding the Changes to Student Loan Repayment Plans

If you have outstanding student loans, you are likely about to face some significant and confusing changes. If you’ve been part of a plan that lowered your payments or deferred them based on income, you have a limited time to contact your loan servicer to make necessary adjustments.

Nearly 8 million borrowers were enrolled in the now-canceled Saving on a Valuable Education (SAVE) Plan. These borrowers were placed in “administrative forbearance” — meaning their payments were paused and no interest accrued — from July 1, 2024, until August 1, 2025, when interest started accruing again. An additional 2 million borrowers had pending applications for income-driven repayment (IDR) plans. They were also in forbearance while waiting for their applications to be processed.

All of these borrowers will soon need to start making monthly payments — and these payments could significantly impact the budgets of nearly 10 million people. Failing to make the new, higher payments will lead to a substantial increase in debt as interest accumulates.

Borrowers must act quickly to choose one of the remaining income-driven repayment plans. This means reaching out to your servicer or an attorney or advocate familiar with student loan law to determine your eligibility for the available options. The following plans are still available:

• Income-Based Repayment (IBR): This existing plan has been modified so that borrowers no longer need to prove financial hardship. Payments are based on a percentage of discretionary income, with forgiveness after a set period of time — usually 20 or 25 years.

• Income-Contingent Repayment (ICR): These plans will continue for existing borrowers, and existing applications are still being processed, but future enrollment will be restricted.

Future Options After July 1, 2026

Your choices will become severely limited if you don’t act now. Here are the options that will be available after July 1, 2026:

• Repayment Assistance Plan (RAP): This is a new plan that replaces many older ones when they expire in July 2026. RAP has a $10 minimum monthly payment, regardless of income. It calculates payments based on a percentage of adjusted gross income, minus an allowance for dependents. Even if low payments are insufficient to cover interest, the principal is reduced by $50/month, and unpaid interest is waived. Loan forgiveness comes only after 30 years of payments.

• Standard 10-Year Repayment Plan: This traditional plan requires much larger monthly payments but minimizes interest paid over the life of the loan. Borrowers currently in the PAYE plan, Graduated Payment Plan, Extended Graduated Plan, or Extended Fixed Plan must switch before July 1, 2026.

It’s also important to note that unless Congress acts to extend current law, student loan amounts that are forgiven will be considered taxable income starting in 2026.

What You Should Do

SAVE Plan borrowers working toward legal loan discharges through Public Service Loan Forgiveness (PSLF) must switch to an alternative IDR repayment plan to start making qualifying payments. Ask your servicer to ensure that your qualifying payments are transferred to any new plan.

Existing participants in the plans being eliminated need to make some decisions. Rae Kaplan, a student loan expert from Kaplan Law Firm, advises borrowers to act quickly. Moving into IBR or ICR now keeps you from being locked out of income-driven repayment plans in July 2026.

Kaplan reminds borrowers that there is no longer a need to prove financial hardship to enroll in an income-driven repayment plan. She notes: “Under the new RAP plan, there is a $10 minimum monthly payment — even if your income is very low. But if you qualify for IBR before the July 1, 2026 deadline, you may still have a $0 payment, depending on your income and family size.”

Kaplan also strongly advises against requesting forbearance, if possible. General forbearance still exists for a maximum of 36 months (granted in 12-month intervals), but the drawback is that interest continues to accrue — increasing your total loan balance.

“Instead,” says Kaplan, “if you qualify for a $0 or low payment under an income-driven repayment plan, take that instead of forbearance. At least you’ll be making progress toward forgiveness, and you will be 'grandfathered' in under the old rules with more flexibility and lower payment options.”

If you have outstanding student loans, please don’t ignore this advice. The Department of Education has already signaled its intent to go after delinquent borrowers after a five-year hiatus. It has recently emailed more than 23 million borrowers — and collected nearly $282 million on defaulted federal student loans through voluntary payments and recapturing tax refunds. Next, they promise wage garnishments.

Confusing, yes! But do not let the changes overwhelm you. Either discuss your situation with a qualified adviser like Kaplan, or use the loan simulator at StudentAid.gov to review your choices. Start now while you have time to review all your options — well before the July 1, 2026 deadline. Procrastinating is not a good option. And that’s the Savage Truth.