If you have federal student loans, something major just happened — and there’s a decent chance nobody told you about it clearly.
On July 1, 2026, the biggest overhaul to the federal student loan system in years took effect. The SAVE plan — which 7.2 million borrowers were enrolled in — is gone. New repayment plans launched. Millions of borrowers who’ve had their payments paused for nearly two years now have 90 days to pick a new plan or get automatically enrolled in one chosen for them.
This is not a “read it later” situation. If you have federal student loans, the decisions you make in the next few weeks could affect your monthly payment, your path to forgiveness, and your credit score for years.
Here’s the plain-English breakdown of exactly what changed, what your options are, and what to do first.
What Just Changed on July 1, 2026?
The Trump administration’s One Big Beautiful Bill Act fundamentally simplified — or depending on your situation, complicated — federal student loan repayment. Here’s what happened:
The SAVE plan is dead. The Biden-era Saving on a Valuable Education (SAVE) plan, which had been in legal limbo since 2024, is officially over. If you were enrolled in SAVE and your payments have been paused, that pause ends now. You have 90 days from July 1 to enroll in a different repayment plan. If you don’t choose one, your loan servicer will put you somewhere automatically.
A new income-driven plan launched: the Repayment Assistance Plan (RAP). This is now the primary income-based repayment option for federal student loans. For new borrowers — anyone taking out federal loans after July 1 — RAP is the only income-driven plan available.
The old repayment menu shrank dramatically. Previously, borrowers could choose from more than 40 different repayment and discharge options. That number is being collapsed to essentially two main tracks: RAP (income-driven) or the new Tiered Standard Plan (fixed payments).
PAYE and ICR plans are being phased out. If you’re currently in the Pay As You Earn (PAYE) or Income-Contingent Repayment (ICR) plan, those sunset on July 1, 2028. You have until then to switch to IBR or RAP.
What Is the New RAP Plan — and Is It Good or Bad for You?
The Repayment Assistance Plan is genuinely a mixed bag depending on your specific situation. Here’s what it actually does:
How RAP Calculates Your Payment
Unlike previous income-driven plans that based payments on “discretionary income” (income above 150% of the poverty line), RAP bases payments directly on your Adjusted Gross Income (AGI). Your monthly payment falls somewhere between 1% and 10% of your annual AGI divided by 12, depending on how much you earn.
There’s a minimum payment of $10/month regardless of income — which means the $0/month payment option that existed under SAVE is gone.
You get $50 knocked off your monthly payment for each dependent you claim on your federal tax return. So a borrower with two kids gets $100/month taken off.
According to NerdWallet’s July 2026 RAP breakdown, monthly payments under RAP are graduated based on AGI — the more you earn, the higher the percentage you pay, up to the 10% cap.
The Good News About RAP
RAP has two features that no previous income-driven plan offered:
Interest waiver. If you make your monthly payment on time, any unpaid interest that accrues beyond what your payment covers is waived. Your balance cannot grow as long as you’re making on-time payments. This was a massive problem with SAVE and other IDR plans — borrowers were paying for years and their balance kept climbing because payments didn’t cover the interest. RAP fixes that.
Matching principal payment. If your on-time monthly payment doesn’t reduce your principal by at least $50, the federal government contributes up to $50 toward your principal. This guarantees your balance actually goes down every month you pay on time. According to the U.S. Department of Education’s official fact sheet, this is one of the plan’s core selling points.
PSLF counts. Payments made under RAP count toward the 120-payment requirement for Public Service Loan Forgiveness — an important detail if you work for a nonprofit or government employer.
The Not-So-Good News About RAP
Forgiveness takes 30 years — not 20 or 25 like previous IDR plans. If you’re a borrower with a large balance hoping for eventual forgiveness, RAP extends that timeline significantly.
Payments may be higher than under SAVE for many low-income borrowers. SAVE shielded more income from the payment calculation. RAP’s AGI-based formula doesn’t offer the same protection for borrowers at the lower income end.
No $0 payments. Even if you’re barely earning anything, you owe at least $10/month. For some borrowers in very low-income situations, this matters.
Parent PLUS loans don’t qualify. If you have Parent PLUS loans, you cannot enroll in RAP at all — period.
What Are Your Options Right Now?
Your situation depends entirely on when your loans were disbursed and what plan you’re currently on.
If You Were on the SAVE Plan (7.2 Million Borrowers)
This is the most urgent situation. Your servicer will send you a notice starting July 1 giving you 90 days to pick a new plan. If you don’t act, you’ll be placed in a standard repayment plan automatically — which could mean significantly higher monthly payments than you’re used to.
Your options:
- RAP — the new income-driven plan described above
- IBR (Income-Based Repayment) — still available if your loans were disbursed before July 1, 2026
- Standard, Graduated, or Extended plans — fixed payment options
Log in to StudentAid.gov immediately to review your loan details and use their repayment calculator to compare what you’d pay under each plan. Don’t wait for the letter — act now.
If You’re on PAYE or ICR
You have until July 1, 2028 before these plans sunset. You’re not in emergency territory, but start thinking about your next move. If you want to stay in an income-driven plan, your long-term option is IBR or RAP. According to CBS News’ July 2026 student loan coverage, anyone still in PAYE or ICR when those plans end will be automatically moved to RAP or IBR if they’re eligible.
If You’re on IBR (Income-Based Repayment)
You can stay put. IBR is not going anywhere in the immediate term. The only caveat: if you take out any new federal loans after July 1, 2026, your access to legacy plans including IBR changes — you’d only have access to RAP and the new Tiered Standard Plan.
If You’re a New Borrower (Loans After July 1, 2026)
You have two choices and two choices only: RAP (income-driven) or the Tiered Standard Plan (fixed payments). The old menu doesn’t apply to you. For most new borrowers who want income-driven protection, RAP is the default path. For borrowers who want to pay off quickly and can afford fixed payments, Tiered Standard may actually save money over the long run since it avoids the 30-year forgiveness timeline.
One Critical Warning: Don’t Take Out New Loans Carelessly
This detail is tripping people up. According to Student Loan Borrowers Assistance, if you have existing federal loans AND take out even one new loan after July 1, 2026, you lose access to your legacy repayment plans on ALL your Direct Loans — not just the new one. You’d be limited to RAP and the Tiered Standard Plan for everything.
This means: if you’re currently on IBR and thinking about going back to school or taking out any new federal loan for any reason, understand that doing so eliminates your access to IBR permanently on your existing loans too. Think carefully before borrowing anything new.
What About Student Loan Forgiveness?
RAP does offer forgiveness — after 30 years of payments. Any remaining balance at that point is canceled, though it’s taxable as income in the year of forgiveness.
PSLF (Public Service Loan Forgiveness) still exists and RAP payments count toward it. If you work for a qualifying nonprofit or government employer and make 120 on-time payments while enrolled in RAP, your remaining balance is forgiven tax-free after 10 years — that hasn’t changed.
What has changed is that the accelerated forgiveness pathways that some borrowers counted on under SAVE (which offered forgiveness in as little as 10 years for some low-balance borrowers) are gone. RAP’s floor is 30 years unless you’re pursuing PSLF.
The Practical To-Do List for Right Now
This week:
- Log into StudentAid.gov and check your current repayment plan status
- Find out who your loan servicer is — Mohela, Nelnet, Aidvantage, etc. — and check your servicer account for any notices
- Use the federal loan simulator to compare your payment under RAP vs. your current plan
- If you were on SAVE, start the application for a new plan now — don’t wait for the 90-day deadline
This month: If you have significant student debt alongside other financial pressures — high-interest consumer debt, no emergency fund, upcoming major expenses — understand how your new student loan payment fits into your overall budget. Our guide on how to budget money using the 50/30/20 rule is a practical framework for fitting a student loan payment into a realistic monthly budget.
If you’re carrying both student debt and other high-interest debt and trying to figure out which to attack first, check out our breakdown of the best debt consolidation loans in 2026 — student loans can sometimes be part of a broader debt strategy, though federal loans should almost never be consolidated into private loans since you lose federal protections.
What This Change Means for Your Credit Score
One thing not enough people are talking about: the 2.6 million borrowers who defaulted on federal student loans in Q1 2026 saw their credit scores drop an average of 91 points. Now that the SAVE forbearance is ending and payments are resuming, borrowers who don’t enroll in a new plan and miss payments face the same credit damage.
Once a federal loan goes 90 days past due, it hits your credit report. At 365 days, it enters default — triggering potential wage garnishment, tax refund seizure, and federal benefit offsets. None of that is a small thing. Acting now, while you still have time to choose your plan, is how you avoid that entire cascade.
Frequently Asked Questions
What happened to the SAVE plan on July 1, 2026? The SAVE plan officially ended. Borrowers who were enrolled in SAVE have 90 days from July 1 to enroll in a new repayment plan. If they don’t choose one, their loan servicer will automatically move them to a standard repayment plan, which may result in significantly higher monthly payments.
What is the new RAP student loan plan? RAP stands for Repayment Assistance Plan. It’s the new income-driven repayment plan that launched July 1, 2026. Payments are 1-10% of your adjusted gross income, with a $10 minimum. It includes an interest waiver and principal matching benefit but has a 30-year forgiveness timeline — longer than previous income-driven plans.
Do I have to switch to RAP? Not necessarily. If your loans were disbursed before July 1, 2026, and you don’t take out any new federal loans, you may be able to stay on IBR or other legacy plans. Only borrowers who were on SAVE, PAYE, or ICR need to actively switch before those plans end.
What if I have Parent PLUS loans? Parent PLUS loans are not eligible for RAP under any circumstances. If you have Parent PLUS loans disbursed after July 1, 2026, your only income-driven option is gone — you’d be limited to standard repayment plans.
Will my student loan payments be higher or lower under RAP compared to SAVE? It depends on your income. For many low-income borrowers, RAP payments will be higher than SAVE payments were, because SAVE shielded more income from the calculation. The interest waiver and principal matching under RAP are genuine benefits, but they don’t offset the higher payment for everyone. Use the federal loan simulator at StudentAid.gov to compare your specific situation.
This article is for informational purposes only and does not constitute legal or financial advice. Student loan rules are complex and individual circumstances vary. Contact your loan servicer or a student loan counselor for guidance specific to your situation.