As the calendar turns to 2026, federal student loan policy in the U.S. is entering a period of sweeping change that will affect current borrowers, future students, and parents who take out loans for their children’s education.
These reforms stem primarily from the One Big Beautiful Bill Act (passed in mid-2025), which restructures repayment options and tightens borrowing limits effective July 1, 2026 and beyond.
Repayment Options: Fewer Plans, New Structure
A centerpiece of the overhaul is a major simplification — and, in some cases, restriction — of federal student loan repayment plans:
New borrowers as of July 1, 2026 will have only two repayment choices:
Standard Repayment Plan: Fixed monthly payments with terms based on how much a borrower owes (from 10 up to 25 years).
Repayment Assistance Plan (RAP): A new income-driven option that ties payments to income and forgives remaining debt after up to 30 years of qualifying payments. It also includes a minimum payment of $10 per month.
Existing income-driven plans such as SAVE, PAYE, and IBR will be phased out for most borrowers and replaced by RAP or the standard plan. Current borrowers have until July 1, 2028 to select a new plan or be enrolled automatically.
What this means:
While simplification may help some borrowers choose a path, many advocates warn that eliminating popular income-based plans could lead to higher monthly payments or longer repayment periods for others.
Borrowing Limits Tightened for Future Students
The reforms include new borrowing caps that could limit how much students — especially graduate and professional students — can borrow in federal loans:
Lifetime federal loan cap: About $257,500 total for new borrowers, counting undergraduate and graduate loans.
Graduate students: Annual limit of $20,500, with a $100,000 lifetime cap.
Professional degrees (e.g., medical, law): Higher annual limits (up to ~$50,000) and a $200,000 lifetime cap.
Parent PLUS loans: Capped at $20,000 per child per year and $65,000 total, reducing borrowing flexibility for families.
Additionally, Grad PLUS loans are being eliminated, closing a loophole that previously allowed graduate students to borrow up to the full cost of attendance.
Impact: These limits will likely push some students — particularly those in high-cost professional programs — toward private loans to cover the funding gap, often at higher interest rates and with fewer protections.
Resumption of Collections and Default Enforcement
After a pandemic-era pause on aggressive collections, the federal government has resumed warnings and enforcement actions against borrowers in default:
Borrowers who have been in default for more than 270 days are now receiving wage garnishment notices, which can withhold up to 15% of earnings to repay debts.
Tax refunds — including credits like the Child Tax Credit and Earned Income Tax Credit — may also be seized to satisfy overdue loan balances.
These collection actions mark a significant shift back toward pre-pandemic enforcement rigor.
Student Loan Forgiveness Now Taxable Again
A key change for borrowers on income-driven plans or pursuing forgiveness is that any debt forgiven after 2025 will be considered taxable income under current law — unless it qualifies under Public Service Loan Forgiveness (PSLF) or related exemptions.
This reverses pandemic-era tax relief that had made forgiven debt tax-free.
Many experts warn this could create a significant tax burden for borrowers expecting forgiveness after decades of payments.
Public Service Loan Forgiveness and Eligibility Rules
PSLF remains in place, but regulations around which employers and positions qualify — especially in the nonprofit sector — have tightened, prompting legal challenges from advocacy groups.
Eligible borrowers should verify whether their employment counts toward PSLF, as stricter definitions may affect forgiveness plans.
With these changes effective in mid-2026 and compliance deadlines stretching into 2028, it’s vital that borrowers:
Review current repayment plans and understand new options.
Consider refinancing or consolidation timing before July 1, 2026.
Talk with financial aid officers or counselors to assess the impact on long-term planning.
Staying informed through official sources like the Department of Education’s studentaid.gov will help borrowers adapt to the evolving landscape of federal student loans.
