Student Loans Under the 2026 Rules

Student loans are the one debt where the cheapest-looking choice is often the wrong one. A lower monthly payment can cost far more in total, a plan that never pays the loan off can be the best deal available, and a refinance that saves interest can give up protections you cannot get back. The rules also changed sharply in 2025 and 2026. This chapter explains how to choose a repayment path under the rules in force now, when forgiveness is worth pursuing, and when paying faster or refinancing makes sense.

Start by knowing exactly what you have

Everything in this chapter depends on two facts about each loan: whether it is federal or private, and when it was first paid out.

Federal loans are listed in your account at studentaid.gov, with the servicer, the loan type and the disbursement date. Most are Direct Loans. Older FFEL and Perkins loans have different rules and usually must be consolidated into a Direct Consolidation Loan to reach the plans and forgiveness programs below.

Private loans come from banks, credit unions and online lenders and do not appear there. Their terms are whatever the contract says: there are no income-driven plans and no federal forgiveness, though some lenders offer hardship options.

The disbursement date matters because the 2025 budget law, Public Law 119-21, gives different choices to loans first paid out before July 1, 2026 and loans paid out on or after that date.

What changed, and what is still settling

The main changes for federal borrowers, as of 2026:

• A new plan, the Repayment Assistance Plan (RAP), opened on July 1, 2026. It sets the payment as a share of income and is available to both existing and new borrowers.
• Loans made on or after July 1, 2026 can use only two plans: a standard plan with a fixed payment over 10 to 25 years depending on the balance, and RAP.
• Older plans are closing. The SAVE plan, Pay As You Earn and Income-Contingent Repayment are being wound down for existing borrowers, with a final deadline of July 1, 2028 in the law. SAVE has also been the subject of court rulings that froze it, so if you are still in it, check studentaid.gov for the date that applies to you and choose a new plan before you are moved automatically. Income-Based Repayment (IBR) stays open to existing borrowers.
• Graduate PLUS loans are no longer made to new borrowers from July 1, 2026, and new annual and lifetime caps apply to graduate borrowing.
• Tax on forgiveness is back. A temporary federal rule made forgiven balances tax-free through the end of 2025. It was not extended, so a balance forgiven under an income-driven plan from 2026 on generally counts as federal taxable income. Forgiveness under Public Service Loan Forgiveness remains tax-free, and the 2025 law made discharge for death or total disability permanently tax-free. State treatment varies.

Some details, such as how servicers move borrowers between plans, are still being implemented. Treat studentaid.gov and your servicer's notices as the final word for your own loans.

The plans, and what each really costs

The standard plan repays the loan with a fixed payment, over 10 years for most existing loans. It has the highest monthly payment and the lowest total interest of any federal plan.

On $35,000 at 6.5%, ten years means $397 a month and $12,690 of interest. Stretching to twenty years lowers the payment to $261 but raises the interest to $27,628. A lower payment is not a cheaper loan; it is a slower one, unless forgiveness wipes out the remainder.

Income-Based Repayment sets the payment at 10% of discretionary income for borrowers whose first loans came on or after July 1, 2014, and 15% for earlier borrowers, and never more than the standard 10-year payment. Discretionary income is adjusted gross income minus 150% of the federal poverty guideline for your family size, which in 2026 is $15,960 for one person in the 48 contiguous states plus $5,680 for each additional person. Whatever is left after 20 or 25 years is forgiven.

RAP takes a share of your whole adjusted gross income, from 1% at low incomes rising one point per income band to 10% at the top, divided by twelve, then subtracts $50 a month for each dependent. The minimum is $10 a month. Two features make it gentler than older plans: interest your payment does not cover is waived rather than added to the balance, and if your payment would reduce the principal only a little, the government adds a matching amount to principal. Any balance left after 360 qualifying payments, thirty years, is forgiven.

Which plan wins depends on income relative to debt. When income is high relative to the balance, the standard plan or faster payment usually costs least. When the balance is large relative to income, an income-based plan keeps payments manageable and the forgiven remainder can be large; then the tax on that forgiveness becomes part of the plan, and setting money aside for it is prudent. The student loan repayment plan calculator runs the standard plan, IBR and RAP side by side on your balance and income, including the amount forgiven.

Public Service Loan Forgiveness

If you work full time for a government employer or a qualifying nonprofit, PSLF can change the whole calculation. After 120 qualifying monthly payments, not necessarily consecutive, the remaining balance on your Direct Loans is forgiven tax-free.

The conditions are strict and mostly about paperwork:

• The loans must be Direct Loans, consolidated if necessary.
• Payments must be made under a qualifying plan. Income-driven plans, including IBR and RAP, qualify, as does the 10-year standard plan, although that one leaves little or nothing to forgive.
• Each period of employment must be certified. Use the PSLF Help Tool on studentaid.gov and certify every year and whenever you change jobs, rather than waiting a decade to discover a gap. Employer eligibility was also the subject of a 2025 Education Department rule, so confirm your employer's status in the tool.

For someone on track for PSLF the usual instincts reverse. The lowest legal payment is the best payment, because every extra dollar would have been forgiven. Prepaying makes no sense, and refinancing into a private loan ends eligibility for good.

Paying faster, refinancing, and the interest deduction

If you are not pursuing forgiveness, paying faster is a guaranteed return equal to the loan's rate. On the standard-plan loan above:

Adding $100 a month clears the loan in 89 months instead of 120 and saves $3,504 in interest.

Refinancing replaces federal or private loans with a new private loan, ideally at a lower rate.

At 5.0% over ten years, total interest falls to $9,548, compared with $12,690 at the original rate. The price is permanent: a refinanced federal loan loses access to income-driven plans, PSLF, federal deferment and forbearance, and federal discharge for death or disability. That trade suits borrowers with stable income, an emergency fund and no plan to use forgiveness, and for private loans, which have no federal protections to lose, the question is only the rate and the new lender's terms. A common middle path is to refinance the private and highest-rate loans and keep the rest federal.

The student loan interest deduction lets you deduct up to $2,500 of interest a year without itemizing. It phases out at incomes the IRS adjusts each year; look up the current range in IRS Publication 970. The deduction lowers the loan's after-tax cost a little but rarely justifies keeping a loan you could pay off.

Whether extra money should go to the loan or to investing depends on comparing the loan's rate with what you might earn, after tax and with the risk counted. The pay off debt or invest calculator runs that comparison. Falling behind is the costly mistake in every scenario: defaulted federal loans can be collected from tax refunds and wages, and those collections resumed in 2025.