Big Changes Hit Federal Student Loan Program
Published December 31, 2025
Why This Matters Now
For years, federal student loans operated under a patchwork of repayment programs, caps, and relief options. With H.R. 1, the federal government is consolidating and simplifying many of these policies. Interest accrual has resumed, new repayment structures are launching, and caps are being placed on total borrowing. It's the most extensive overhaul of the student loan system in decades.
Interest and Payments Have Resumed
The pandemic-era pause on interest and payments has officially ended. Borrowers must now resume monthly payments, and interest is accruing again on all outstanding federal student loan balances.
New Repayment Structures Coming in 2026
Repayment Assistance Plan (RAP)
New borrowers starting July 1, 2026, will be offered either a standard fixed plan or the new Repayment Assistance Plan (RAP). RAP is designed to streamline repayment with income-based features but will replace older plans like SAVE and PAYE.
Transition for Existing Borrowers
Borrowers currently enrolled in legacy income-driven repayment (IDR) plans must transition by July 1, 2028. If no action is taken, they will be defaulted into RAP automatically.
Lifetime Loan Limits Now in Effect
Caps on Total Borrowing
New federal borrowing caps begin July 1, 2026. These include:
- $257,500 lifetime limit for federal loans
- $20,500/year and $100,000 total for most graduate programs
- $50,000/year and $200,000 total for professional degrees like law and medicine
These restrictions apply only to new borrowers from July 2026 onward.
Public Service Loan Forgiveness (PSLF) and Default Collections
Narrowed PSLF Eligibility
The PSLF program remains available, but qualifying roles and eligible loans may become more narrowly defined under H.R. 1. Borrowers should reassess their eligibility in light of the new rules.
Wage Garnishment Returns
The federal government will resume wage garnishment and other collection actions against borrowers with defaulted loans in early 2026.
Broader 2025–2026 Implications
Forgiveness Will Be Taxable Again
Starting January 1, 2026, loan forgiveness under IDR plans will once again be considered taxable income, reversing the temporary exemption introduced during COVID-19 relief efforts.
Expanded Eligibility for Relief
Higher-income borrowers may now qualify for revised IBR plans, with the partial financial hardship requirement eliminated, broadening access.
The SAVE Plan Is Likely Ending
Due to pending legal settlements, the SAVE plan is expected to sunset. This may force many current enrollees into RAP or other costlier alternatives.
Rising Monthly Payments
Without SAVE and with older IDR plans phasing out, millions will face higher monthly payments starting in mid-to-late 2026.
What Borrowers Should Do Now
- Review your repayment plan and loan terms
- Prepare for the return of interest and potential garnishment
- Evaluate eligibility for PSLF under updated rules
- Plan for possible tax on forgiven balances in 2026
- Consider your refinancing or consolidation options carefully
Conclusion
The federal student loan system is undergoing massive change. From resumed interest to new repayment options and loan caps, H.R. 1 and IRS guidance signal a new era for borrowers. Whether you're still in school, newly graduated, or working toward forgiveness, now is the time to review your options and prepare for the year ahead.
