1. What’s Changing Now?
- New Federal Law Passed (July 4, 2025): The “One Big Beautiful Bill” signed into law by President Trump consolidates federal student loan repayment into just two plans:
- Standard Repayment – fixed 10–25-year payback
- Repayment Assistance Plan (RAP) – income-driven with 30 years before forgiveness marketwatch.com+1livenowfox.com+1en.wikipedia.org+6the-sun.com+6kiplinger.com+6
- Eliminated Plans: Biden-era plans, including SAVE, PAYE, ICR, and Income-Contingent Repayment are discontinued en.wikipedia.org+2the-sun.com+2marketwatch.com+2.
- New Borrowing Caps:
- Grad Students – $100K lifetime cap
- Professional Degrees (Med/Law) – $200K cap
- Parent PLUS – $65K cap the-sun.com+1kiplinger.com+1businessinsider.com+5businessinsider.com+5the-sun.com+5.
- Grad PLUS eliminated; deferment/hardship postponements end; wage garnishment resumes as of 2026–2028 en.wikipedia.org+10the-sun.com+10kiplinger.com+10.
2. Public Service Loan Forgiveness (PSLF) Overhaul
- A major revamp of PSLF is underway:
- Employers tied to “illegal activities” (e.g., immigration aid, transgender services, DEI support) may be disqualified en.wikipedia.org+11livenowfox.com+11timesofindia.indiatimes.com+11.
- The Education Secretary gains discretion to strip organizations from eligibility—even without a legal conviction kiplinger.com+4abcnews.go.com+4apnews.com+4.
- Critics warn this could disrupt forgiveness for healthcare, education, & nonprofit workers ed.gov+15abcnews.go.com+15apnews.com+15.
- Official rulemaking began July 2, 2025, with public input and a draft in motion for July 2026 implementation .
3. Tax Implications
- The new law does not extend the tax exclusion for forgiven debt beyond December 31, 2025 the-sun.com+5kiplinger.com+5en.wikipedia.org+5.
- Starting 2026, any forgiven loan may be taxable, unless Congress acts.
4. Impact on Borrowers
- Monthly Payments May Rise: RAP minimum payment is $10/month, with rising income percentages and no cap, potentially increasing costs en.wikipedia.org+3marketwatch.com+3kiplinger.com+3.
- Extended Forgiveness Timeline: From 20–25 years up to 30 years for RAP participants nypost.com+4marketwatch.com+4the-sun.com+4.
- Risk of Garnishment: Wage, tax refund, and Social Security garnishments will resume for defaulters the-sun.com+1marketwatch.com+1.
- PSLF Qualification at Risk: Public servants may lose eligibility through employer disqualification—likely to impact nurses, teachers, etc. ed.gov+5apnews.com+5timesofindia.indiatimes.com+5.
5. What Borrowers Should Do Now
- Review Repayment Strategy: Evaluate current plan vs. new RAP or standard options.
- Monitor PSLF Status: Track employer eligibility; submit Employment Certification Forms early.
- Plan for Taxes: Budget for possible tax bills on forgiven debt in 2026.
- Avoid Default: Consider consolidation or alternative payments; contact servicer now.
- Stay Informed: Watch for the PSLF draft rules and public comment period ahead of the July 2026 implementation.
