If you're taking out federal student loans for the first time this year, the repayment rules look very different from what they did even twelve months ago. The SAVE plan is gone. Congress passed a sweeping bill that changed how repayment works. And starting July 1, 2026, new borrowers will have just two repayment plan options instead of the half-dozen that existed before. This matters right now, before you sign that promissory note, because the decisions you make about borrowing today will shape your monthly payments for the next decade or longer.
What Happened to the SAVE Plan
The Saving on a Valuable Education (SAVE) plan was introduced in 2023 as the most generous income-driven repayment plan ever offered for federal student loans. It lowered monthly payments for millions of borrowers and offered a faster path to forgiveness.
Then it was challenged in court. Multiple states sued, arguing the plan exceeded the Department of Education's authority. In December 2025, the Department of Education reached a settlement with the State of Missouri to end the plan. No new borrowers could enroll. Pending applications were denied. The more than 7 million borrowers already in SAVE were told to choose a different plan.
On top of that, the One Big Beautiful Bill Act (OBBBA), signed into law in 2025, formally eliminated SAVE by statute, effective July 2028. But for practical purposes, the plan is already dead. If you're borrowing for the first time in 2026, SAVE is not an option.
Why this matters to you: You may have heard parents or older friends talk about income-driven repayment plans with low payments and loan forgiveness after 20 years. The rules have changed. What worked for them may not be available to you. Make sure you understand the current options before you borrow.
The Two Plans Available to New Borrowers Starting July 1, 2026
If your first federal student loan is disbursed on or after July 1, 2026, you'll choose between two repayment plans. That's it. Here's how each one works.
The Tiered Standard Plan
This is a fixed-payment plan. Your monthly amount stays the same for the life of your loan. The key difference from the old standard plan is that your repayment term now depends on how much you owe, according to Harvard's Student Financial Services summary of the new law:
- Borrowed up to $24,999: 10-year repayment term
- Borrowed $25,000 to $49,999: 15-year repayment term
- Borrowed $50,000 to $99,999: 20-year repayment term
- Borrowed $100,000 or more: 25-year repayment term
There's no income calculation. No annual recertification. No forgiveness at the end. You pay a fixed amount each month until the loan is gone. You can always pay more than the minimum without penalty.
Example: If you borrow $30,000 at the current undergraduate interest rate of 6.39 percent and land in the 15-year tier, your monthly payment would be roughly $260. Over 15 years, you'd pay about $16,700 in interest on top of the original $30,000.
The Repayment Assistance Plan (RAP)
RAP is the new income-driven option. It replaces SAVE, PAYE, ICR, and eventually all previous IDR plans for new borrowers. NerdWallet's overview and the Congressional Research Service analysis lay out the key features:
- Monthly payments are based on your adjusted gross income (AGI). Unlike older IDR plans that used discretionary income, RAP applies a percentage directly to your total AGI.
- The percentage scales with income. Borrowers earning less pay a smaller percentage. The range goes from 1 percent of AGI for low earners up to 10 percent for those earning over $100,000. The minimum payment is $10 per month.
- Dependent deductions apply. If you have dependents, $50 per dependent is deducted from your monthly payment.
- Interest is subsidized. If your monthly payment doesn't cover all the accrued interest, the Department of Education covers the rest. Your balance won't grow because of unpaid interest.
- Principal assistance. If your payment chips away at less than $50 of principal per month, the government will apply up to an additional $50 toward your balance.
- Forgiveness after 30 years. Any remaining balance is forgiven after 360 qualifying monthly payments.
Example: If you earn $40,000 per year and owe $30,000, your RAP payment would be roughly $150 to $200 per month depending on where you fall on the AGI scale. That's lower than the Tiered Standard payment, but you'd be in repayment much longer.
How Monthly Payments Compare Across Plans
Here's a simplified comparison for someone who borrows $30,000 at 6.39 percent interest:
- Tiered Standard (15-year term): About $260 per month. Total paid: roughly $46,700. No forgiveness.
- RAP at $40,000 salary: Roughly $150 to $200 per month initially. Payments rise as income grows. Forgiveness after 30 years if a balance remains.
- RAP at $60,000 salary: Roughly $300 to $350 per month initially. You may pay off the loan well before the 30-year mark.
The right choice depends on your expected career path, income, and how much certainty you want in your monthly budget. Neither plan is universally better.
Understand Repayment Before You Borrow
This is the most important section of this article. Too many students sign their loan paperwork without thinking about what repayment will actually look like. Then graduation arrives, the grace period ends, and the monthly bill is a shock.
The 10 Percent Rule
Here's a straightforward guideline that financial aid experts have used for years: your total monthly student loan payment should be no more than 10 percent of your expected gross monthly starting salary. If you expect to earn $45,000 in your first job out of college, that's $3,750 per month. Ten percent is $375. If your projected loan payment is higher than that, you may be borrowing too much.
How to Estimate Your Payment
Before you accept any loan, do this:
- Look up the average starting salary for your intended career on the Bureau of Labor Statistics website.
- Use the Federal Student Aid loan simulator to estimate your monthly payment based on the amount you plan to borrow.
- Run the numbers for both the Tiered Standard Plan and RAP so you can see the difference.
- Multiply your expected monthly payment by 12. That's how much of your annual income goes to loans. If it's more than 10 percent of your expected starting salary, consider borrowing less or choosing a more affordable school.
Borrow Only What You Need
Federal loans come with annual limits for a reason. For dependent undergraduates, the limit is $5,500 for first-year students and rises to $7,500 by junior year. You don't have to accept the full amount. If your family can cover part of the cost through savings, a 529 plan, or work income, borrow less. Every dollar you don't borrow is a dollar you won't pay interest on for the next 10 to 25 years.
Warning Signs You're Borrowing Too Much
- Your projected monthly payment is more than 10 percent of your expected starting salary.
- You're maxing out federal loans every year AND taking out private loans on top.
- You're borrowing for living expenses that could be reduced by choosing different housing, working part-time, or adjusting your meal plan.
- Your total debt at graduation will exceed your expected first-year salary.
- You don't know what your monthly payment will be. If you can't estimate it, that's a sign you need to run the numbers before borrowing more.
Private Loans: A Different Set of Rules
Everything above applies to federal student loans. Private loans, offered by banks and online lenders, work differently in important ways:
- Interest rates vary. Private loan rates can be fixed or variable. Depending on your credit history and cosigner, rates for the 2025-26 year range from about 4 percent to over 16 percent.
- No income-driven repayment. Private lenders don't offer RAP or any income-based plan. Your payment is fixed based on the loan terms you agreed to.
- No federal forgiveness. Private loans aren't eligible for Public Service Loan Forgiveness, RAP forgiveness, or any other federal program.
- Fewer protections. Federal loans offer deferment, forbearance, and the ability to switch plans. Private loans have much more limited options if you hit financial trouble.
The bottom line on private loans: Exhaust your federal loan options first. If you still need to borrow, shop around carefully, read every line of the terms, and understand that you'll have fewer safety nets.
What's Still Shifting
Federal student loan policy has changed dramatically in the past three years, and it may change again. Here's what to keep in mind:
- The RAP plan was created by the OBBBA but still requires federal rulemaking to finalize some implementation details. The broad strokes are set, but specific calculations and processes may be adjusted before July 2026.
- Existing borrowers who took out loans before July 1, 2026 keep access to older plans like Standard, Graduated, Extended, and IBR. But ICR, PAYE, and SAVE are being phased out by July 2028.
- Interest rates for loans disbursed in the 2025-26 academic year are 6.39 percent for undergraduates. Rates for 2026-27 won't be set until spring 2026.
- If you're already enrolled and borrowed before July 1, 2026, you may be grandfathered into current rules for the duration of your program or up to three years, whichever is shorter.
Always verify the latest details with your loan servicer or your school's financial aid office. Policy is still being finalized, and the specifics can shift between now and when your first payment comes due.
Roadblocks to Watch
Ignoring repayment until after graduation. By then, you've already borrowed the money. Understand the terms before you sign.
Assuming income-driven repayment means low payments forever. RAP payments increase as your income grows. At higher salaries, your payment may not be much different from the Tiered Standard Plan.
Not accounting for interest. At 6.39 percent, a $30,000 loan accrues about $5.25 in interest per day. Over four years of school with unsubsidized loans, that adds up to thousands before you make your first payment.
Treating loan limits as targets. Just because you can borrow $5,500 doesn't mean you should. Borrow what you need, not what's offered.
Cosigning private loans without understanding the risk. Parents who cosign are equally responsible for repayment. If your student can't pay, the lender comes to you.
The Bottom Line
The student loan system in 2026 is simpler than before, but the stakes are just as high. New borrowers have two federal repayment options: the Tiered Standard Plan for predictable fixed payments, and RAP for income-based payments with eventual forgiveness. Both have tradeoffs. Neither is a safety net that makes borrowing risk-free.
Before you sign your promissory note, know your numbers. Estimate your monthly payment. Compare it to your expected starting salary. Borrow only what you truly need. And remember that the best time to think about repayment is before you borrow, not after.
Use CollegeLens to compare your net costs across schools and see how different aid packages affect what you'll need to borrow.
-- Sravani at CollegeLens