The landscape of student debt in the United States is poised for its most significant transformation in years. A wave of major reforms, set in motion by President Donald Trump's "One Big, Beautiful Bill Act" (OBBBA), will begin rolling out in the coming weeks, fundamentally altering repayment and forgiveness options for millions of borrowers.
Immediate Changes: Easier Access to Income-Based Repayment
One of the first and most notable shifts will be the dramatic expansion of the Income-Based Repayment (IBR) plan. By the end of December 2024, the stringent "partial financial hardship" requirement will be eliminated. This change opens the IBR doors to higher earners and a much broader pool of federal student loan holders.
Education Department systems had been incorrectly denying eligible applicants earlier this year. Following a settlement with the American Federation of Teachers, officials have committed to updating these systems by late December. Until the fix is complete, loan servicers have been instructed to hold onto IBR applications that would have been denied under the old rules.
Higher education authority Mark Kantrowitz highlights that removing the hardship test will finally allow many previously excluded borrowers to benefit. Under IBR, payments are typically capped at 10% of a borrower's discretionary income (or 15% for older loans), with remaining debt forgiven after 20 or 25 years.
A Narrowing Field of Repayment Options
This expansion of IBR comes alongside the gradual phasing out of other popular plans. The Biden-era Saving on a Valuable Education (SAVE) plan has been terminated. Furthermore, the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans are scheduled to sunset in July 2028.
Kantrowitz notes that roughly 2.5 million people currently use ICR or PAYE. While many ICR users may pay less under IBR, PAYE borrowers, especially those with post-July 2014 loans, might see minimal change. It is important to note that monthly payments under IBR will generally be higher than they would have been under the now-defunct SAVE plan.
By 2028, the menu of income-driven plans will shrink to just two: the revamped IBR and a new scheme called the Repayment Assistance Plan (RAP), slated for launch in 2026.
The New RAP Plan and the Return of the Tax Bomb
The forthcoming Repayment Assistance Plan (RAP) will offer some borrowers their lowest possible monthly payment. However, this comes with a major trade-off: a much longer path to forgiveness. Debt cancellation under RAP will only arrive after 30 years, compared to 20-25 years under current plans.
Betsy Mayotte, President of The Institute of Student Loan Advisors, offers a crucial piece of advice for borrowers switching plans. "The good news is that all of these plans cross-pollinate," she said, meaning payment counts towards forgiveness on one plan will carry over to another.
A potentially costly change awaits on 1 January 2026. The tax exemption for student loan forgiveness under income-driven repayment (IDR) plans will expire. Unless Congress acts, borrowers who receive forgiveness after this date could face a substantial tax bill, as the forgiven amount may be treated as taxable income.
To protect those nearing forgiveness, the Education Department has agreed not to issue tax forms (1099-C) to anyone who reaches their forgiveness milestone by the end of 2025, even if the processing happens in 2026. Borrowers in SAVE who are close to eligibility are advised to switch to PAYE, IBR, or ICR before 31 December 2025 to secure tax-free cancellation.
From July 2026, other structural changes take effect. New federal borrowing limits will be imposed on undergraduate and postgraduate students. Parent PLUS borrowers face a critical deadline: they must consolidate into the Direct Loan program by 1 July 2026 or lose access to income-driven plans entirely. Given consolidation can take months, the window to act is tight.
