Big Beautiful Tax Bill Overhauls Student Loan Repayment Options: End of the SAVE Program
The Big Beautiful Tax Bill has made headlines for reshaping major areas of the tax code but buried within the legislation is a sweeping overhaul of the federal student loan system, which will have long-term implications for both current and future borrowers.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
The Big Beautiful Tax Bill has made headlines for reshaping major areas of the tax code but buried within the legislation is a sweeping overhaul of the federal student loan system, which will have long-term implications for both current and future borrowers.
If you—or your children—have federal student loans or plan to take them out, here’s what you need to know about repayment plans, loan forgiveness, and graduate borrowing limits as we head toward a new era in federal student aid.
Starting in 2026: Only Two Main Repayment Options
One of the biggest shifts takes effect in July 2026, when the federal government will consolidate most repayment options into just two primary plans for new borrowers:
1. Standard Repayment Plan
Fixed monthly payments over 10 years
Similar to current standard plans
Ideal for borrowers with stable income who want to eliminate debt quickly
2. Repayment Assistance Plan (RAP)
Monthly payments based on income and family size
Forgiveness available after 20–30 years, depending on the loan type
Unpaid interest does not capitalize annually, but continues to accrue
While the RAP offers more flexibility, it comes with a longer repayment horizon. This model mirrors existing income-driven plans, but with stricter forgiveness timelines and reduced subsidies over time.
Existing Income-Driven Repayment Plans Will Be Phased Out
The bill also mandates the sunset of current income-driven repayment (IDR) plans such as IBR, PAYE, REPAYE, and even the more recently introduced SAVE plan (discussed later).
Borrowers currently enrolled in these programs will have a transition period until 2028 to switch into the new Repayment Assistance Plan (RAP). After that date:
New enrollment in existing IDR plans will be closed
Borrowers will need to opt into RAP or move into the standard plan
Previously accrued progress toward forgiveness may carry over, depending on guidance from the Department of Education (still pending)
Borrowers currently on track for loan forgiveness in an existing plan should carefully review how the transition may affect their timelines.
Graduate Borrowers Face New Loan Caps
Graduate and professional students—who often rely on federal student loans to cover the full cost of attendance—are facing new borrowing limits:
New Federal Caps for Graduate Borrowers (Effective 2026):
$100,000 lifetime maximum for most graduate and professional programs
Applies across all federal programs, including Graduate PLUS
Borrowers may need to seek private loans or employer aid to cover costs beyond the cap
This is a dramatic departure from current rules, which allow grad students to borrow up to the full cost of attendance—including tuition, housing, and living expenses. Under the new system, graduate students will be expected to budget more conservatively or explore alternative financing.
Changes to the SAVE Program
The Saving on a Valuable Education (SAVE) plan, introduced in 2023 as a more generous income-driven repayment option, is also on the chopping block.
According to the Trump administration, the SAVE plan will:
As of August 1, 2025, interest will begin accruing again for SAVE plan borrowers, even though they may still be in forbearance
The SAVE Program will be eliminated by June 30, 2028, and borrowers will be moved into a new income-driven repayment plan called RAP.
Lose features such as interest subsidies and lowered income thresholds for $0 monthly payments
For many, this means monthly payments could increase significantly once the SAVE subsidies disappear. Borrowers may also need to recalculate their budgets as interest builds up again and full payments resume.
If you're enrolled in SAVE, expect updates from your servicer in late 2025 outlining your transition options.
Forgiveness Becomes Taxable Again After 2025
One of the more overlooked but financially critical changes in the bill relates to taxation of forgiven student loan balances.
Currently, through the end of 2025, student loan forgiveness—whether through IDR, PSLF, or closed school discharge—is not considered taxable income at the federal level. That exclusion is set to expire.
Starting January 1, 2026, any federal student loan balance that is forgiven will be treated as taxable income by the IRS. This change has major implications for borrowers expecting loan forgiveness in the next 5–10 years.
Example: If $100,000 in student loans is forgiven in 2026, the borrower may owe federal taxes on that full amount—potentially triggering a $20,000+ tax bill depending on their bracket.
Borrowers approaching forgiveness in IDR plans may want to accelerate their timelines, if possible, or start preparing for a potential future tax liability.
Final Thoughts
The student loan system has been gradually shifting over the last few years, but the Big Beautiful Tax Bill accelerates those changes in a way that will permanently reshape how future generations borrow and repay federal loans.
Whether you're a current borrower navigating the SAVE sunset, a parent helping a graduate student manage new loan caps, or someone on track for forgiveness after 2025, proactive planning will be essential. Understanding the timing, tax implications, and repayment structures will help you avoid financial surprises in the years ahead.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs)
What major changes does the Big Beautiful Tax Bill make to federal student loans?
Beginning in 2026, the law consolidates most federal student loan repayment options into two main plans—the Standard Repayment Plan and a new Repayment Assistance Plan (RAP). It also caps graduate borrowing at $100,000 and makes forgiven loan balances taxable again starting in 2026.
What are the two new repayment options starting in 2026?
Borrowers can choose between a 10-year Standard Repayment Plan with fixed payments or the new Repayment Assistance Plan (RAP), which bases payments on income and family size. The RAP offers forgiveness after 20–30 years, depending on loan type, but limits interest subsidies compared to current programs.
What happens to existing income-driven repayment (IDR) plans like SAVE, PAYE, or REPAYE?
These programs will be phased out by 2028. Borrowers currently enrolled in them can stay until the transition period ends but will eventually need to move into the new RAP or Standard Plan. Progress toward forgiveness may carry over, though official guidance is still pending.
How does the new law affect graduate and professional borrowers?
Starting in 2026, graduate students will face a $100,000 lifetime borrowing cap across all federal loan programs, including Graduate PLUS. Those who need additional funds may have to rely on private loans, scholarships, or employer tuition assistance.
What happens to the SAVE repayment plan under the new law?
The SAVE plan will begin phasing out in 2025 and be fully eliminated by June 30, 2028. Borrowers will lose features such as interest subsidies and lower payment thresholds. They will be moved automatically into the new RAP once SAVE ends.
Will student loan forgiveness be taxable again?
Yes. Starting January 1, 2026, any federal student loan balance that is forgiven—through income-driven repayment, PSLF, or other discharge programs—will once again be treated as taxable income by the IRS. Borrowers expecting forgiveness soon should prepare for potential tax liability.
How should borrowers prepare for these changes?
Review your repayment plan, understand your eligibility under the new RAP, and talk to a financial or tax advisor about potential tax implications. If you’re approaching forgiveness before 2026, accelerating repayment or adjusting your timeline may reduce future tax exposure.
