Federal student-loan rules tighten forgiveness and tax discharged debt
Updated
Updated · The Wall Street Journal · May 2
Federal student-loan rules tighten forgiveness and tax discharged debt
5 articles · Updated · The Wall Street Journal · May 2
From July 1, 2026, the Education Department will end SAVE, shift borrowers into new plans and let forgiven loans after January 1, 2026 face federal income tax.
The new Repayment Assistance Plan generally requires at least $10 monthly and up to 30 years of repayment, though officials say unpaid interest can be waived and balances reduced.
The changes reverse Biden-era easing that brought forgiveness to 5.3 million borrowers, while public service relief remains for some, including a rule allowing part-time jobs to be combined.
With the SAVE plan gone, will the new RAP program truly offer a viable path to debt freedom for millions?
Loan forgiveness now triggers a major tax bill. How can borrowers prepare for this unexpected financial burden?
Graduate school dreams are now costlier. How will students fund their education without the Grad PLUS loan program?
Navigating the 2026 Student Loan Crisis: Taxable Forgiveness Returns and New OBBBA Repayment Rules
Overview
Starting January 1, 2026, federal taxes on forgiven student loan debt resume following the expiration of the American Rescue Plan's tax exclusion, creating a 'tax bomb' that disproportionately impacts low-income borrowers by increasing their taxable income and reducing eligibility for tax credits. On July 1, 2026, the One Big Beautiful Bill Act (OBBBA) overhauls repayment options, introducing the Repayment Assistance Plan (RAP) with payments based on 1-10% of income and a 30-year forgiveness timeline, and a Tiered Standard Repayment Plan. The OBBBA also eliminates key deferments, restricts borrowing for Parent PLUS and graduate loans, and tightens default rehabilitation, contributing to rising defaults and aggressive collections. These changes tighten federal loan access and increase financial pressure, especially for vulnerable borrowers.