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5 Key Student Loan Changes Coming in 2026

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  Published in Business and Finance on Sunday, January 4th 2026 at 20:25 GMT by Investopedia

Navigating the New Landscape: Five Major Student Loan Changes Coming in 2026

The student loan landscape has been in constant flux, particularly over the last few years with pandemic-related pauses and policy shifts. While the Supreme Court struck down President Biden’s broad debt forgiveness plan, significant changes are still on the horizon for millions of borrowers. Many of these changes, driven by the SAVE (Saving on a Valuable Education) Plan and other reforms, will take effect in 2026, fundamentally altering how student loan repayment works. Understanding these shifts is crucial for anyone with federal student loans to plan their finances effectively.

Here's a breakdown of five key changes borrowers can expect starting in 2026:

1. The SAVE Plan’s Income-Driven Repayment (IDR) Overhaul:

The most significant change revolves around the implementation of the revised SAVE plan, which is replacing the older Revised Pay As You Earn (REPAYE) program. This isn't just a name change; it represents a substantial overhaul of income-driven repayment calculations. The original REPAYE plan already offered lower payments based on income and family size, but the new SAVE plan takes this even further.

The core difference lies in how discretionary income is calculated. Previously, REPAYE used 10% of discretionary income to determine monthly payments for undergraduate loans. SAVE reduces that percentage to 5% for borrowers with undergraduate loans. This reduction alone will significantly lower monthly payments for many. For those with both undergraduate and graduate loans, the calculation becomes more complex (explained further below), but generally aims for a fairer outcome.

Furthermore, SAVE expands the definition of discretionary income. It uses the poverty guideline adjusted for family size instead of the previous 150% of the poverty line. This means that more of a borrower's income will be considered non-discretionary and therefore excluded from payment calculations. This is particularly beneficial for individuals with larger families or lower incomes.

2. Graduate Loan Payment Adjustments:

The new SAVE plan introduces tiered payments for borrowers with graduate loans. Previously, all IDR plans treated undergraduate and graduate loans the same. Now, borrowers with graduate degrees will have their monthly payments calculated based on a combination of both undergraduate and graduate loan balances. The payment percentage increases incrementally as the total combined balance rises.

Specifically, borrowers with a combined undergraduate and graduate loan balance between $12,000 and $30,000 will pay 5% of discretionary income. Between $30,000 and $42,000, they'll pay 8%, and for balances exceeding $42,000, the payment rate jumps to 10%. While this tiered system might result in higher payments than those with only undergraduate loans, it still aims to provide more affordable repayment options compared to standard plans.

3. Interest Subsidy Enhancements:

A crucial element of the SAVE plan is its enhanced interest subsidy. Under IDR plans, borrowers often face situations where their monthly payment doesn't cover the accruing interest. This unpaid interest gets capitalized (added) to the principal balance, increasing the overall loan amount and extending repayment time. The new SAVE plan significantly reduces this problem.

The plan will subsidize (cover) a larger portion of the accrued interest for borrowers with undergraduate loans. This means that even if their monthly payment is lower than the total interest accruing, the government will cover the difference, preventing it from being added to the principal balance. This feature alone can save borrowers thousands of dollars over the life of the loan and significantly shorten repayment timelines. The subsidy decreases slightly for graduate borrowers but remains substantial.

4. The Return of Periodic Recertification:

Borrowers enrolled in IDR plans, including SAVE, are required to recertify their income and family size annually. This process ensures that payments remain accurate based on current financial circumstances. While this requirement existed previously, it was temporarily paused during the pandemic. Starting in 2026, annual recertification will resume.

This means borrowers must proactively submit updated information to their loan servicer each year. Failure to do so can result in higher monthly payments and potentially losing eligibility for the IDR plan. The Department of Education is working on streamlining this process through automatic data sharing with the IRS, which should make recertification easier and less burdensome.

5. Potential for Faster Loan Forgiveness:

While not guaranteed, the SAVE plan also offers a potential pathway to faster loan forgiveness. After 20 years of qualifying payments for borrowers with original balances of $12,000 or less, their loans will be forgiven. Borrowers with higher original balances will see forgiveness after 25 years. This is a significant improvement over the standard 20-25 year timeframe under older IDR plans.

However, it's important to note that any amount forgiven may be considered taxable income unless Congress acts to make it tax-free (as was done with the pandemic forgiveness programs). The long-term implications of loan forgiveness and its potential taxability remain a subject of ongoing debate.

Preparing for 2026:

These changes represent a significant shift in student loan repayment, offering potentially substantial benefits to many borrowers. To prepare:

• Explore the SAVE Plan: Visit [ studentaid.gov ] to learn more about the plan and determine if you're eligible.
• Update Contact Information: Ensure your contact information is current with your loan servicer to receive important updates and notifications.
• Understand Recertification Requirements: Familiarize yourself with the annual recertification process and set reminders to complete it on time.

The transition to these new student loan repayment rules will require borrowers to stay informed and proactive. By understanding these changes, individuals can better manage their debt and navigate the evolving landscape of federal student loans.