Student loan repayment has changed more in the past eighteen months than in the previous decade, and the pace of change is exactly what makes it so hard to follow. Plans have been created and retired, a major plan was ended by court settlement, and a tax provision that protected borrowers quietly expired. This article covers the current rules, and then does something most guides skip: it separates what appears settled from what is still moving, so you know which handful of items actually deserve your attention going forward.
Rules described below are current as of August 2026.
The Two Plans That Now Define Student Loan Repayment
As of July 1, 2026, the federal system runs on two plans for new borrowing. The Department of Education describes both in its June 2026 fact sheet on repayment simplification.
The Repayment Assistance Plan, or RAP, is the income-driven option. Monthly payments run between 1 and 10 percent of income depending on earnings, reduced by $50 per month for each dependent. Two features are new. Unpaid monthly interest is waived when a borrower makes an on-time payment, which addresses the long-standing problem of balances growing despite years of payments. And if an on-time payment does not reduce principal by at least $50, the Department contributes a matching principal payment of up to $50 that month. Any remaining balance may be discharged after 360 on-time monthly payments, which is 30 years.
The Tiered Standard plan is the fixed-payment option. Rather than putting every borrower on a 10-year schedule, it assigns a term of 10, 15, 20, or 25 years based on the amount borrowed, so larger balances stretch over longer periods and carry smaller monthly payments.
Which plans you can use depends on when your loans were disbursed. If all of your loans were disbursed on or after July 1, 2026, RAP is your only income-driven option. If you borrowed before that date, you have a wider menu: RAP, Tiered Standard, or Income-Based Repayment, and you have until July 1, 2028 to choose among them.
If You Were on SAVE, You Have a Deadline Right Now
This is the most time-sensitive item in this article, and it affects roughly 7.5 million people.
A court approved a settlement in March 2026 that ended the Saving on a Valuable Education plan. According to the Department’s March 2026 guidance to affected borrowers, servicers began issuing notices on July 1, 2026. Each notice carries a borrower-specific deadline of 90 days to enroll in another plan. Borrowers who do not act within that window are automatically enrolled in either the Standard Repayment Plan or the new Tiered Standard plan.
Read that timing carefully. Notices went out beginning July 1 and continue through October, which means a borrower notified in July has a deadline arriving around now. Automatic enrollment is not a disaster, but the default plan is unlikely to be the one you would have chosen, and it may carry a substantially higher payment than an income-driven plan would. If you were on SAVE, log in to your servicer account and find your specific date rather than waiting for a reminder.
How Forgiveness Actually Works Now
Forgiveness comes from three broad places, and they operate independently of one another.
Time-based forgiveness through a repayment plan. RAP discharges a remaining balance after 360 qualifying payments. Income-Based Repayment, still available to borrowers with pre-July 2026 loans, forgives after 20 or 25 years depending on when the borrower first took out loans.
Public Service Loan Forgiveness. PSLF remains a 120-qualifying-payment program for borrowers working full time for a qualifying employer, which includes government agencies and most 501(c)(3) nonprofits. For public school teachers, city and county employees, and state workers across the Sacramento region, this is usually the most valuable path available. Current program requirements are maintained at the Federal Student Aid PSLF page.
Targeted programs. Teacher Loan Forgiveness, discharge for death or total and permanent disability, closed school discharge, and borrower defense each have their own criteria and are separate from the two categories above.
One structural point worth internalizing: PSLF requires a remaining balance to forgive. If you are on a fixed plan that fully retires the debt within ten years, there is nothing left at payment 120. Borrowers pursuing PSLF are generally on an income-driven plan for that reason.
The Tax Change Most Borrowers Have Not Heard About
This one deserves its own section because it is the largest financial surprise available in this area right now.
The American Rescue Plan Act made most federal student loan forgiveness tax-free, but only for discharges occurring after December 31, 2021 and on or before December 31, 2025. That window has closed. As the IRS Taxpayer Advocate Service explains in its March 2026 guidance on forgiveness and taxes, a balance forgiven under an income-driven plan in 2026 or later is generally treated as cancellation of debt income, reported on Form 1099-C, and taxed at ordinary income rates.
The scale matters. A borrower reaching forgiveness with $90,000 outstanding may be adding $90,000 to that year’s taxable income, which can push income into higher brackets and affect anything else keyed to adjusted gross income. Borrowers who expect forgiveness in the next few years should be planning for that liability now, whether through increased withholding, estimated payments, or dedicated savings.
Three important exceptions remain tax-free by statute: Public Service Loan Forgiveness, Teacher Loan Forgiveness, and discharge due to death or total and permanent disability. For the public sector employees we work with most often, this is a meaningful distinction. It also means that for some borrowers the arithmetic now favors PSLF over time-based forgiveness by a wider margin than it used to.
What Seems Settled and What Is Still Moving
Here is the breakdown that makes the rest of this manageable. The left column has been stable across multiple administrations and court decisions. The right column has moved recently or is subject to pending rulemaking, litigation, or expiration.
| Reasonably settled | Still moving |
|---|---|
| PSLF exists in statute and requires 120 qualifying payments | Which employers count as qualifying for PSLF |
| PSLF forgiveness is not taxable federally | Whether income-driven forgiveness stays taxable after 2025 |
| Income-driven payments are calculated from income and family size | Which specific income-driven plans exist and what they are called |
| Federal loans carry protections that private refinancing permanently gives up | California conformity to federal forgiveness tax treatment |
| Certifying employment annually protects your payment count | Servicer assignments and the accuracy of transferred payment counts |
| Death and disability discharge is tax-free | Deadlines tied to the SAVE wind-down and the 2028 plan election |
The useful insight in that table is that the underlying principles of student loan repayment have been durable while the packaging has not. Payment-count protection, income-based calculation, and the tax-free status of public service forgiveness have survived every recent change. Plan names, thresholds, and deadlines have not. If you anchor on the principles and monitor only the right-hand column, you can stop reading every headline.
Five Variables Worth Tracking
Expand each item below for what could change, and where to verify it without relying on secondhand reporting.
1. Whether income-driven forgiveness remains taxable
Why it matters to you: this single variable can swing the value of time-based forgiveness by tens of thousands of dollars.
Where to check: IRS guidance on cancellation of debt, and your own Form 1099-C if forgiveness occurs.
2. PSLF employer eligibility
Why it matters to you: the 120-payment requirement is stable, but the definition of a qualifying employer determines whether your payments count at all.
Where to check: the PSLF pages at StudentAid.gov, and your annual employment certification result.
3. Your servicer and your payment count
Why it matters to you: a lost count is the most common way borrowers lose years of progress, and it is also the most preventable.
Where to check: download your full payment history from StudentAid.gov and save a copy locally at least once a year. Do this before any announced transfer, not after.
4. The July 1, 2028 plan election deadline
Why it matters to you: if you hold pre-July-2026 loans, this is the date by which you choose among RAP, Tiered Standard, and Income-Based Repayment. Treat it as real until it is formally changed.
Where to check: announcements at StudentAid.gov and direct notices from your servicer.
5. California tax conformity
Why it matters to you: federal and California treatment of a forgiven balance may differ, which affects what you should set aside.
Where to check: the California Franchise Tax Board, and your tax preparer before any year in which forgiveness is expected.
What to Do This Month Regardless of What Changes Next
- Log in to StudentAid.gov and confirm which repayment plan you are actually on, which is not always the plan you believe you are on.
- If you were enrolled in SAVE, find your servicer’s specific 90-day deadline and act before it expires.
- Download and save your complete payment history and, if you work in public service, your employment certification record.
- Consent to have the Department pull your income directly from the IRS, which speeds up applications and reduces recertification errors.
- If forgiveness is within a few years, estimate the potential tax liability and start setting money aside.
- Think very carefully before refinancing federal loans with a private lender, because the federal protections and forgiveness paths described above are given up permanently.
Where This Fits in the Rest of Your Plan
Student loan repayment does not sit in isolation. The plan you choose affects your monthly cash flow, which affects what you can contribute to a 403(b) or 457(b). Payments on income-driven plans are calculated from income, so retirement plan contributions and filing status can influence them. And if forgiveness is coming with a tax bill attached, that liability belongs in your plan years before it arrives.
We help clients across the Sacramento region work through these tradeoffs, particularly teachers and public sector employees for whom Public Service Loan Forgiveness is often the single largest financial variable in their household. If you would like a second set of eyes on your own situation, you are welcome to schedule a free 30-minute call.
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Rooney Wealth Management LLC is an investment adviser registered with the state of California. This article is for educational purposes only and is not tax, legal, or investment advice. Please consult your tax or financial professional regarding your specific situation.
