The U.S. Department of Education has agreed to end the SAVE student loan repayment plan amid legal challenges, affecting millions of borrowers. New repayment options and borrowing limits will take effect next year, alongside concerns over rising defaults. These shifts, driven by the Trump administration and Congress, aim to overhaul the system but raise worries for affordability.
Borrowers navigating federal student loans will encounter significant alterations starting in 2026, following a proposed settlement announced by the U.S. Department of Education in early December 2025. The agreement ends the Saving on a Valuable Education (SAVE) plan, which had provided affordable payments as low as $0 for low-income individuals and accelerated forgiveness. Republican state attorneys general had challenged it for overstepping authority, leading to months of paused payments and accruing interest since August 2025.
Under the settlement, pending court approval, approximately 7 million SAVE enrollees must transition to alternative plans, potentially facing higher monthly costs. "The law is clear: if you take out a loan, you must pay it back," stated Under Secretary of Education Nicholas Kent. Betsy Mayotte, founder of the Institute of Student Loan Advisors, highlighted the disruption: borrowers who based financial decisions on SAVE now confront uncertainty, as no prior plan has been revoked midstream for existing users.
Public Service Loan Forgiveness (PSLF), established by Congress in 2007, remains intact but faces rule changes effective July 1, 2026. The department will deny forgiveness to workers whose public or nonprofit employers pursue activities with a "substantial illegal purpose," a term to be defined by the education secretary. In November 2025, cities including Boston, Chicago, San Francisco, and Albuquerque sued, arguing that resistance to federal policies, such as immigration enforcement, could disqualify local public employees like nurses from relief.
The One Big Beautiful Bill Act (OBBBA) further reshapes options by phasing out Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) by mid-2028, while introducing two new plans from July 1, 2026. The standard plan offers 10- to 25-year terms with fixed payments akin to a mortgage, scaled by debt size. The Repayment Assistance Plan (RAP) ties payments to adjusted gross income, waives excess interest, and matches payments under $50 toward principal, with forgiveness delayed to 30 years.
Borrowing limits tighten for graduate students, capping annual loans at $20,500 ($50,000 for professional degrees) and ending the grad PLUS program, which previously covered full costs. Parent PLUS loans are limited to $65,000 per child. Undergraduates face no such changes.
Amid these reforms, delinquency looms large: 5.5 million borrowers are in default, 3.7 million over 270 days late, and 2.7 million delinquent, per recent data. Wage garnishment for defaulters resumes in early 2026, prompting bipartisan concerns over a potential "default cliff," as warned by advocates like Persis Yu of Protect Borrowers.
