Student Loan Reform: SAVE Ends, Parent PLUS Deadline, and PSLF

Federal student loan reform has reshaped repayment heading into 2026. The SAVE Plan has been ended by settlement, the tax-free treatment of forgiven balances expired on December 31, 2025, Income-Based Repayment (IBR) has been opened to all borrowers regardless of income, and Parent PLUS borrowers face a June 30, 2026, deadline to consolidate or lose access to income-driven repayment permanently. If you have federal student loans, at least one of these changes almost certainly affects you.

SAVE Is Over

The Saving on a Valuable Education Plan replaced REPAYE and was built to be the most generous income-driven plan on offer: 225% of the federal poverty guideline protected from payments, undergraduate payments set at 5% of discretionary income, and a full interest subsidy so balances would not grow while you paid.¹ Most of that never took effect. A multistate lawsuit led by Missouri produced injunctions that parked enrolled borrowers in an administrative forbearance where interest accrued but months did not count toward forgiveness. In December 2025 the Department of Education settled with the plaintiff states to end SAVE, and the Eighth Circuit directed the lower court to accept the settlement.²

If you were enrolled in SAVE or had a pending application, you need to pick a new plan and start paying. Servicers will move borrowers who don’t act, but the default choice may not be the cheapest one for your income or the best one for forgiveness. Log in and choose.

Which Income-Driven Plans You Can Still Use

Three IDR plans remain open: IBR, Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR). IBR is now the workhorse. In late December 2025 the Department updated its systems to remove the “partial financial hardship” test, so any borrower can enroll regardless of income.²

IBR payments run 10% of discretionary income for borrowers whose loans predate July 1, 2014, and 15% for newer borrowers. Discretionary income is defined against 150% of the federal poverty guideline, less generous than what SAVE would have used.³ Forgiveness arrives at 20 years for newer borrowers and 25 years for older ones.

PAYE and ICR are still available, but anyone in either plan must switch by June 30, 2028.² A new Repayment Assistance Plan (RAP) is scheduled to launch July 1, 2026. Early details show monthly payments ranging from 1% to 10% of earnings, a $10 minimum, and a 30-year forgiveness clock. That is ten years longer than IBR, and the trade-off will matter once RAP is live.

One more timing point: borrowers who take out a new loan or a new consolidation loan on or after July 1, 2026, will have narrower IDR options.² If consolidation is on your list, doing it before that date preserves the broadest menu.

Parent PLUS: The June 30, 2026 Deadline

Parent PLUS Loans have always had thin IDR options. The only income-driven plan open to a consolidated Parent PLUS borrower has been ICR, at 20% of discretionary income. The “double consolidation” workaround that used to unlock other plans is closed.

What replaced it is a single deadline. To keep any IDR access at all, a Parent PLUS borrower must complete a Direct Consolidation Loan that is disbursed by June 30, 2026. Processing takes time, so the practical cutoff for submitting the application is closer to April 2026. Borrowers already consolidated and sitting in ICR have until June 30, 2028, to move into a better plan like IBR.²

Missing June 30, 2026, is permanent. Any Parent PLUS borrower who takes out a new federal loan or consolidates on or after July 1, 2026, is permanently barred from every IDR plan, including on existing consolidated loans. That also closes off PSLF, because PSLF requires an IDR plan.² For a parent working in public service with a large balance, this one date is the difference between forgiveness and a fixed payment for the rest of the loan.

Forgiven Balances Are Taxable Again in 2026

The American Rescue Plan Act made forgiven student loan debt tax-free through the end of 2025. That treatment expired on December 31, 2025. Starting in 2026, a balance forgiven under an income-driven repayment plan is generally treated as cancellation-of-debt income and taxed at your ordinary federal rate.⁴ For someone reaching the end of a 20- or 25-year IDR term with a six-figure balance, the tax bill can be substantial.

Several types of forgiveness stay tax-free under federal law:

Public Service Loan Forgiveness after 120 qualifying payments.⁵
Teacher Loan Forgiveness.
Death and total and permanent disability discharges.

Timing matters. If you were notified in 2025 that your loans were eligible for forgiveness, the forgiveness event itself generally controls the tax treatment even if the paperwork closed in 2026.⁴

If your liabilities exceed the fair market value of your assets at the moment of forgiveness, you’re insolvent for tax purposes and can exclude some or all of the canceled amount by filing IRS Form 982. Many long-term IDR borrowers qualify because they’ve been paying against a large balance without accumulating much in assets. States handle forgiveness differently, so check your state’s tax treatment before you count on a federal exclusion covering the whole bill.

Public Service Loan Forgiveness

PSLF is unchanged in its core structure. After 120 qualifying monthly payments made while working full-time (an average of at least 30 hours per week) for a qualifying employer, the remaining balance on your Direct Loans is discharged. Only Direct Loans qualify; older FFEL or Perkins Loans must be consolidated into a Direct Consolidation Loan first.

Qualifying employers are U.S. government entities at any level (including the military, public schools, and public universities), 501(c)(3) nonprofits, and certain other nonprofits that provide services like public health, public education, emergency management, law enforcement, or early childhood education. Labor unions and partisan political organizations do not count. Hours across two qualifying part-time employers can be combined to hit 30, and FMLA leave and vacation count toward the average.⁶

Certify employment every year using the PSLF Help Tool. You’ll need a recent W-2 or your employer’s EIN, plus the email of someone authorized to sign off, who will get a digital request.⁷ Annual certification catches counting errors while there’s time to fix them; borrowers who wait until payment 120 sometimes find gaps they can no longer address.

The One-Time Payment Count Adjustment

The Department’s one-time account adjustment, announced in 2022 to correct years of servicer errors, was completed in fall 2024. Updated counts began showing up in borrower accounts in January 2025.⁸ The adjustment credited long-term forbearance (12 consecutive months or 36 cumulative), payments under any repayment plan whether or not it was technically qualifying, and time in repayment before consolidation. For PSLF, those months counted as qualifying payments if you can certify qualifying employment during them.

The consolidation deadline that unlocked the adjustment for commercially-held FFEL and Perkins Loans was June 30, 2024, and it has passed. Borrowers who didn’t consolidate those loan types in time can’t get the adjustment for them.⁸ Check your count. If it still looks wrong, contact your servicer and ask for a review.

Disability, Borrower Defense, and Closed School Discharges

Total and Permanent Disability discharge is now largely automatic. The Department matches records with the Social Security Administration, sends a notice of eligibility to identified borrowers, and processes the discharge unless the borrower opts out within 60 days. The three-year post-discharge earnings monitoring requirement is gone, so a discharged loan will no longer be reinstated for a missed annual form.⁹

Borrower Defense to Repayment lets students defrauded by their school apply for discharge. Regulations effective July 1, 2023, set five grounds: substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment, and a judgment against the institution.¹⁰ Claims can take up to three years, and loans may sit in forbearance while a claim is reviewed. If you think you have one, file rather than wait.

Closed school discharge is available if your school closed while you were enrolled or within 180 days of your withdrawal, and as of July 1, 2023, it can also apply if the school stopped offering most of its programs. Borrowers who don’t enroll elsewhere and don’t apply within one year of closure may get an automatic discharge.

Interest Capitalization: What Changed and the IBR Trap

Capitalization adds unpaid interest to your principal, and you then pay interest on the larger balance. Recent rules removed capitalization from several situations that used to trigger it automatically. On Direct Loans held by the Department, unpaid interest no longer capitalizes when you enter repayment after a grace period, exit forbearance, or move between IDR plans.¹¹

IBR is the exception. Interest still capitalizes in three IBR situations: you voluntarily leave IBR for another plan, you miss your annual income recertification deadline, or your income rises high enough that you no longer qualify for a reduced payment after recertifying. The recertification miss is the common one and the easiest to prevent. Put the date on your calendar the day your servicer confirms it.

FFEL loans that aren’t held by the Department run on older, less favorable rules, where capitalization can still occur after forbearance, after the grace period, and when leaving IBR.¹¹ Direct Consolidation moves those loans under the current rules, but the one-time adjustment that would have credited pre-consolidation payments is over, so consolidating now resets your IDR count.

1
eCFR. 34 CFR 685.209 – Income-Driven Repayment Plans
2
Federal Student Aid. IDR Plan Court Actions – Impact on Borrowers
3
U.S. Department of Health and Human Services. 2026 Poverty Guidelines
4
Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes
5
Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
6
Federal Student Aid. Public Service Loan Forgiveness FAQs
7
Federal Student Aid. Public Service Loan Forgiveness (PSLF) Help Tool
8
Federal Student Aid. IDR Account Adjustment
9
Federal Student Aid. Automatic Total and Permanent Disability Discharge Through Social Security Administration Data Match
10
Federal Student Aid. Final Regulations – Borrower Defense to Repayment, Pre-Dispute Arbitration, Interest Capitalization, and Related Provisions
11
Federal Student Aid. Federal Interest Rates and Fees