Student loan borrowers are facing major changes to federal education lending that start this year.
The shifts, stemming largely from the megabill President Donald Trump signed into law in July, will roll out over the next few years, with different timelines for different borrowers.
“There’s likely to be a lot of confusion,” says Sarah Sattelmeyer, a project director specializing in student debt at the think tank New America. “The next year — or few years — are likely to be pretty bumpy … because everything is changing.”
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The student loan overhaul comes at a delicate time for many borrowers. Amid stubbornly high inflation, more than 4 in 10 borrowers reported choosing between making their loan payments and meeting their basic needs in a recent survey from The Institute for College Access & Success.
What’s more, the specifics of how all the new policies will actually work are still being ironed out — even though many take effect this summer. Jill Desjean, director of policy analysis with the National Association of Student Financial Aid Administrators (NASFAA), says the organization is “very mired in the details” to ensure financial aid officers can give families concrete information — “we’re dealing with all the ‘what ifs’ right now,” she adds.
If you’re planning to borrow for higher education in the next few years or you have loans that you’re currently repaying, you’ll be better off as an informed consumer who knows where to go for advice.
Here’s what is changing in 2026 — and what to do right now if you’re affected.
Student loan forgiveness is taxable (again)
What’s happening: A temporary exemption that made student loan forgiveness tax-free at the federal level has expired. As of Jan. 1, borrowers who qualify to have their remaining debt wiped out after paying back their loans through income-driven repayment plans will owe federal income taxes on that amount. Depending on the size of the forgiven debt, some borrowers could get saddled with a massive tax bill.
For example, a single borrower with an adjusted gross income of $65,000 and $50,000 of canceled debt in 2026 would see their federal tax liability jump by roughly $10,850, according to Garrett Watson, director of policy analysis at the Tax Foundation.
If you met the requirements for forgiveness last year and applied before the end of 2025, but your application has been stuck in the Education Department’s processing backlog, you should still qualify for tax-free forgiveness. According to court documents in a lawsuit regarding the backlog, the department considers the date a borrower becomes eligible to have their loans canceled as the effective date of their loan discharge — regardless of how long the processing takes.
Note that this change in tax treatment does not apply to debt canceled through Public Service Loan Forgiveness, which has always been tax-free at the federal level and remains so.
What to do now: Borrowers who anticipate qualifying for debt cancellation this year should plan for a larger tax bill for 2026. If you can’t afford the amount you owe at the time you file taxes, you can set up a payment plan with the IRS. It may be helpful to talk with an accountant about other ways to lower your taxes to offset the increase in what’s considered income.
If you have a longer time horizon before forgiveness, financial planners typically recommend you set aside savings each month or each year to help cover the future tax bill. If the rules change again and forgiven debt is exempt from federal income taxes, then you’ll simply have extra savings to put toward other goals.
Stricter borrower limits
What’s happening: One of the biggest changes coming down the pike sets new limits for how much graduate borrowers and parents taking out loans for their children’s undergraduate degree can borrow.
Beginning July 1, graduate degree borrowers will have an annual maximum of $20,500, while professional-degree borrowers — think: medicine, law, dentistry and veterinary students — can borrow up to $50,000 a year. Parent borrowers can take out up to $20,000 per student, per year, with an aggregate limit of $65,000 per student.
In the past, all of these borrower groups were allowed to borrow up to the full cost of attendance every year.
New students enrolling in the 2026-27 academic year will have to abide by the limits immediately. Current borrowers have a legacy provision that allows most to borrow under the old rules for up to three years.
Under the new limits, some graduate students may have to turn to private loans, which haven’t played a big role in the grad school space recently because of the availability of federal loans, says Desjean with NASFAA.
“That’s a new wrinkle,” she says, adding that she anticipates a wave of fresh products from private lenders to meet the new demand.
What to do now: Current students should talk with their financial aid officer ahead of next academic year to make sure they understand the details around continued eligibility.
“Knowing that you have access to those federal loans instead of assuming is always preferable,” Desjean says.
If you are a graduate student or parent borrower looking at private student loans for the first time, be sure to shop around and read the details of terms like cosigner release, hardship protections and perks closely.
Enrollment status, academic program can affect individual loan limits
What’s happening: Two other new rules could affect how much you can borrow, and unlike the new limits for grad students and parents, nobody will be grandfathered in. These policies fully take effect on July 1 for all students.
The first change applies to students attending less than full time. Until now, part-time students have had the same loan maximums as full-time students. Starting in the 2026-27 academic year, though, annual limits will be reduced for students enrolled less than full time.
The other change gives colleges more control over how much students can borrow for individual academic programs. Institutions will be able to set separate limits for undergraduate or graduate programs of their choosing, so long as they are lower than the federal cutoffs. Institutionally determined limits cannot be set on a student-by-student basis; they must apply to an entire program.
What to do now: Federal student aid defines full-time enrollment as at least 12 credit hours per semester for undergraduates and six credit hours for graduate students. If you’re not planning to meet those cutoffs during the 2026-27 academic year, talk with your financial aid officer to get an idea of what your personal max will be and your options for filling in any funding gaps.
For the program-specific limits, students likely have some time before colleges roll out any new policies, but it’s worth keeping an eye on announcements from your school.
The power can work both ways: Some schools, like community colleges, that don’t currently participate in the federal student loan program could theoretically choose to offer loans for certain higher-earning programs. Other colleges may choose to limit students’ borrowing ability in specific programs.
SAVE plan is ending
What’s happening: After roughly 20 months in legal limbo, the Saving for a Valuable Education program — former President Joe Biden’s marquee affordable repayment plan — is set to officially end.
Although Congress approved sunsetting SAVE in the tax bill passed last summer, it wasn’t set to happen until 2028. A proposed court settlement, which resolves a lawsuit alleging the plan was illegal, expedites the end of SAVE.
There are some 7 million borrowers enrolled in SAVE, and they’ll need to switch to a new plan. But the details of how and when borrowers will have to exit the plan are still up in the air. The Education Department said after announcing the settlement in early December that it will “reach out to SAVE borrowers in the coming months with more information.” It’s possible the department may choose to automatically shift borrowers into a new plan early in 2026.
The end of the plan has many borrower advocates worried. SAVE was especially generous to the lowest-income borrowers, and so they’ll see their payments increase, regardless of which plan they move into.
But the other concerning aspect involves borrower behavior: Because of the timing of the pandemic-era protections and when payments under the SAVE plan were paused by court order, it’s possible there are borrowers in the plan who have not made a payment in nearly six years, Sattelmeyer says.
That long of a break means these borrowers are woefully out of the habit of managing a monthly student loan bill within their budget.
What to do now: If you don’t know whether you’re enrolled in SAVE, find out by visiting studentaid.gov and logging in to see your loan details. If you are in the soon-to-be defunct plan, pay attention to updates from your servicer and the Education Department about next steps.
You can also proactively switch to another plan without waiting for the department. The Institute of Student Loan Advisors has helpful guidance about next steps for SAVE borrowers here.
Student loan repayment plans are shifting
Borrowers in the SAVE plan will see the most immediate shift in their repayment, but the entire landscape of available plans is set to change, too.
The timeline depends on when you took out your most recent loan: Students who take out a new loan after July 1 — even if they have older loans — will only have access to two repayment plans: a new standard plan and the new repayment assistance plan (RAP).
The new standard plan calls for equal monthly payments, with the repayment term length determined by how much you borrowed. The RAP is the new income-based repayment plan, with monthly payments ranging from 1% to 10% of the borrower’s adjusted gross income. (See more on both plans here.)
Borrowers who are already in repayment and who do not take out any more loans will continue to have access to the existing plans until July 1, 2028.
What to do now: Although you have a few years to change, it’s still a smart idea to familiarize yourself with your options and double check that you’re in the best plan for your situation. Log into your account at studentaid.gov and use the loan simulator, which uses your exact loan details and financial information to model what you’d owe each month under different plans.
Collections on overdue debt are returning
What’s happening: Forced collections on overdue student loans started last year, but there are a few reasons why it remains a big issue.
First, some background: When a borrower misses nine payments on their federal student loans, they fall into default. After that happens, the government turns their account over to collections, where it can take money out of federal payments like tax refunds and garnish your wages. Collections were paused for the better part of five years as a protection that started during the pandemic.
The Trump administration restarted collections in May — after many borrowers had already received tax refunds. That means borrowers in default may get a rude surprise during tax season this spring when their refund is withheld.
Missing out on that cash has the “potential to be a huge economic event for families,” Sattelmeyer says.
The administration says it also plans to start garnishing wages — withholding up to 15% of a borrower’s paycheck to pay back overdue debt — early in 2026, according to the Washington Post. The government must give borrowers 30 days notice before it starts taking money out of their paychecks. The first notices are expected to go out this week.
The final reason is simple numbers: Millions of borrowers are falling behind on their payments in a trend economists and consumer advocates are calling the “default cliff.” If the current delinquency trends hold, 13 million borrowers could be in default by the end of 2026, according to the Student Borrower Protection Center.
What to do now: If you can’t remember when you last made a student loan payment, log into your account on studentaid.gov or contact your loan servicer right away. If you’re still in delinquency, then you may be able to enroll in a plan with a more affordable payment or enter into a forbearance.
Once you cross the default line, your available options shrink. You’ll have to set up a payment plan to stop the collections. You can learn more here.
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