These 8 Sweeping Student Loan Forgiveness Changes Happen In 2026

Sweeping student loan forgiveness changes for federal student loans are going into effect this year following a number of significant legislative, legal, and policy developments. And millions of borrowers will be impacted by the time the dust settles. Some of these changes are already in effect, while others will be implemented at various points throughout 2026. By the end of this year, the landscape may be much different for borrowers than it was in 2025.
Here’s a breakdown of some of the most important student loan forgiveness changes happening this year, and what borrowers need to know.
Most Student Loan Forgiveness Is Now Taxable Again
Most forms of debt cancellation and student loan forgiveness are potentially taxable events for borrowers, resulting in the issuance of an IRS Form 1099-C that requires that borrowers report the amount of forgiven or cancelled debt as “income” on their tax return. Borrowers may then have to pay taxes on that extra “income.”
The American Rescue Plan Act, signed by President Joe Biden in 2021, temporarily exempted student loan forgiveness from federal taxation through the end of 2025. But congressional Republicans declined to extend most of this relief under the One Big, Beautiful Bill Act (or OBBBA) that President Trump signed into law last July.
Under the OBBBA, student loan forgiveness under income-driven repayment plans goes back to being treated as taxable income again, which could lead to enormous tax penalties for some borrowers. The OBBBA does make permanent federal tax relief for the Total and Permanent Disability discharge program, which offers loan cancellation to student loan borrowers with medical impairments. And profession-based student loan forgiveness, such as Public Service Loan Forgiveness (or PSLF) and Teacher Loan Forgiveness, remains tax-free federally.
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Borrowers with student loans eligible for any form of forgiveness or discharge should be aware that states may have different rules regarding the tax treatment of debt cancellation, and should consult with a qualified tax advisor.
Student Loan Forgiveness Under The SAVE Plan Is Dead
Student loan forgiveness under the SAVE plan, a Biden-era income-driven repayment plan program, has been blocked for nearly 18 months after a group of Republican-led states mounted a legal challenge, arguing the program was illegal. A federal court granted an injunction blocking the SAVE plan in the summer of 2024. Since then, more than seven million borrowers have been stuck in a forbearance, which hasn’t counted toward student loan forgiveness under IDR plans or PSLF.
Last month, the Education Department and the state challengers entered into a settlement agreement that will conclusively end the SAVE plan and prevent borrowers from receiving loan forgiveness under the program. The agreement is still pending court approval, but most observers expect the agreement to get the green light. Borrowers in the SAVE plan will soon have to switch to another IDR plan (such as Income-Based Repayment) to qualify for loan forgiveness, although changing repayment plans should not result in the loss of any loan forgiveness credit.
Student Loan Forgiveness Under The IBR Plan Is Resuming
In a bit of good news for borrowers, the Education Department resumed processing student loan forgiveness under the IBR plan last fall for borrowers who have reached their 25-year repayment threshold for a discharge. IBR is the only current income-driven repayment option that will be preserved under the OBBBA. The department had previously suspended discharges under IBR, leading to a legal challenge.
According to Education Department data, 170 borrowers received student loan forgiveness under IBR during the month of November. That number is expected to increase in the coming months as the department ramps up discharge processing. The department also successfully implemented changes to the IBR plan under the OBBBA that remove a “partial financial hardship” requirement, which will make it easier for borrowers with higher incomes to enroll.
Student Loan Forgiveness Under The ICR And PAYE Plans Should Resume Soon
The Education Department had suspended student loan forgiveness under the ICR and PAYE plans, citing court orders related to the SAVE plan legal challenges. However, after the department’s position was challenged in a lawsuit, the department agreed to resume processing student loan forgiveness under ICR and PAYE for borrowers with student loans that had reached their 25-year or 20-year eligibility thresholds.
So far, no borrowers have received student loan forgiveness under ICR or PAYE. However, the department indicated in a court filing last month that it expects system updates to be in place by February so that loan forgiveness under ICR and PAYE can proceed.
Borrowers should be aware that even as student loan forgiveness under the ICR and PAYE plans is set to ramp up, the plans themselves will be phased out under the OBBBA by July 2028. Borrowers enrolled in ICR and PAYE will eventually need to switch to either the IBR plan or to the new Repayment Assistance Plan (or RAP) expected to launch later this year.
New Repayment Assistance Plan Delays Student Loan Forgiveness Until 30 Years
The Education Department is working on finalizing the regulations governing the new Repayment Assistance Plan, or RAP, which is a new income-driven repayment plan under the OBBBA. The plan is expected to launch later this year, possibly as soon as this summer.
RAP will have some benefits including lower payments for some borrowers compared to IBR, and a generous principal and interest subsidy that will prevent borrowers’ student loans from ballooning over time due to runaway interest accrual. However, RAP will have a 30-year repayment term before a borrower can qualify for student loan forgiveness, far longer than all current IDR options. RAP also will require higher monthly payments for most borrowers compared to the SAVE and PAYE plans, and will also require higher monthly payments for the lowest-income borrowers (even a borrower who has no income at all would be required to pay at least $10 per month under RAP).
Some Parent PLUS Borrowers Must Act Soon To Preserve Student Loan Forgiveness
With the looming phaseout of the ICR plan, which traditionally has been the only income-driven repayment plan option available for borrowers with Parent PLUS loans (a type of loan issued to the parent of an undergraduate student), Parent PLUS borrowers have a diminishing window of time to act to preserve their student loan forgiveness options.
Under the OBBBA, Parent PLUS borrowers must consolidate their federal student loans via the federal Direct loan program (if they haven’t already done so) before July 1, 2026 to preserve access to any IDR plan and, ultimately, to loan forgiveness, including through PSLF. Since the consolidation process can sometimes take up to 90 days or longer, that effectively means those borrowers should apply to consolidate no later than April 1, 2026. These borrowers will then be required to enroll their consolidated student loans in ICR and make at least one ICR payment. Only then will they be able to subsequently switch to IBR by the time that the ICR plan is phased out.
All other Parent PLUS borrowers, and Parent PLUS borrowers who take out any new student loans on or after July 1 of this year, will effectively be cut off from any IDR option, and from student loan forgiveness under both IDR and PSLF.
Student Loan Forgiveness Restrictions For PSLF Set For July
The Education Department is barreling forward with proposed new regulations that could fundamentally reshape student loan forgiveness under the PSLF program. PSLF allows borrowers to qualify for a discharge in as little as 10 years if they work for a qualifying nonprofit or government employer while making required payments.
Under the proposed new PSLF rules, the department could unilaterally disqualify an employer from PSLF eligibility if it engages in activity that has a “substantial illegal purpose.” Critics argue that the rules would allow the department to punish nonprofit organizations and Democratic state and city governments that run afoul of the Trump administration’s priorities when it comes to issues like immigration, healthcare for transgender youth, and diversity initiatives, while the Education Department has countered that the rules are necessary to ensure that PSLF is benefiting the appropriate organizations.
A loose coalition of nonprofit organizations, states, and municipalities have filed at least three legal challenges, arguing that the proposed PSLF restrictions are unlawful and unconstitutional. The challenges, which are still in the early stages of litigation, seek to block the new PSLF regulations before they even go into effect. In the meantime, the regulations are set to go live this July. But additional legal challenges could get filed.
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