Fewer doors, narrower paths

For most of the past decade, a federal student-loan borrower who could not afford the standard ten-year payment had a menu to choose from. Income-driven repayment (IDR) plans — Income-Contingent Repayment, Pay As You Earn, Revised Pay As You Earn, Income-Based Repayment, and after 2023 the SAVE plan — each set monthly payments as a share of income and discharged any remaining balance after 20 or 25 years.

That menu has now been cut down. The SAVE plan, the most generous of the options, has been eliminated by litigation. And the One Big Beautiful Bill Act (OBBBA), signed in July 2025, rewrites the rest: borrowers who take out loans on or after July 1, 2026 will have exactly two choices. This brief explains what happened, what replaces the old system, and why a shorter menu is a substantive change, not a cosmetic one.

How SAVE ended

SAVE was introduced by the Biden administration in 2023. It lowered payments by counting less income as available for repayment, and it stopped unpaid interest from snowballing — if a borrower’s payment did not cover the monthly interest, the rest was forgiven rather than added to the balance.

It was challenged almost immediately. In February 2025, the Eighth Circuit Court of Appeals held that the plan exceeded the Department of Education’s statutory authority. To comply with the resulting injunction, the Department placed SAVE borrowers in a forbearance and began charging interest again on August 1, 2025 — and crucially, months spent in that forbearance count toward neither IDR forgiveness nor Public Service Loan Forgiveness.

The plan was then formally wound down. On December 9, 2025, the Trump administration and the State of Missouri reached a settlement: the Department agreed to enroll no new borrowers, deny pending applications, move all SAVE borrowers into other plans, and pursue rulemaking to repeal the SAVE rule outright. A district judge initially declined to approve that settlement, but in March 2026 the Eighth Circuit reversed that dismissal and directed the lower court to enter the settlement as a final judgment.

The practical effect: roughly 7 million borrowers who had been enrolled in SAVE must move to a different plan. Until the new system is running, the Department has directed them toward Income-Based Repayment.

What OBBBA puts in its place

OBBBA does not just remove SAVE — it consolidates the entire IDR landscape. The change turns on a single date, July 1, 2026.

• For loans taken out before July 1, 2026: the older plans (ICR, PAYE, REPAYE, IBR) remain available temporarily. But borrowers on ICR, PAYE, or REPAYE must choose to move to IBR, to the new Repayment Assistance Plan, or to a fixed payment plan. Those who do not choose by mid-2028 are moved automatically into the new plan.
• For loans taken out on or after July 1, 2026: only two options exist. A “tiered standard” plan with a fixed term that varies by balance, and one income-driven option — the Repayment Assistance Plan, or RAP.

RAP is the new floor and ceiling of income-driven repayment for future borrowers. Its mechanics:

• Payments scale with total income. RAP ties the payment to adjusted gross income rather than to “discretionary” income (income above a protected threshold) as the older plans did. The payment runs from 1% of AGI for borrowers earning just over $10,000 up to 10% of AGI for those earning above $100,000, with a flat $10 minimum for the lowest earners.
• A small dependent allowance. The required payment drops by $50 per month for each dependent claimed on the borrower’s tax return.
• An interest waiver and a principal floor. If the RAP payment does not cover the month’s interest, the unpaid interest is not charged. A matching subsidy also reduces the principal by at least $50 a month.
• A longer road to forgiveness. RAP discharges a remaining balance after 30 years of qualifying payments — 360 monthly payments.

That last figure is the one to hold onto. The older IDR plans forgave balances after 20 or 25 years. RAP extends that to 30. For a borrower who never earns enough to clear the balance, that is five to ten additional years of payments before any relief.

Pell Grants: two changes in opposite directions

OBBBA also reaches the grant side of federal aid. Two Pell Grant changes take effect for the 2026-27 award year.

The first narrows eligibility. Beginning July 1, 2026, a student whose non-federal scholarships and grants cover their entire cost of attendance becomes ineligible for a Pell Grant for that period — even if they would otherwise qualify by income. The stated logic is that Pell should not exceed need; the practical effect is that some low-income students who win large private or institutional “full-ride” awards lose a grant they could otherwise have used for related costs, and the calculation falls to financial-aid offices to administer.

The second expands eligibility in a new direction. “Workforce Pell” makes Pell Grants available, for the first time, for short-term job-training programs — courses of 150 to 599 clock hours that can be completed in roughly 8 to 15 weeks. To qualify, a program must be accredited, must clear both state and federal approval, and must show a 70% completion rate and a 70% verified job-placement rate at 180 days. Unlike traditional Pell, Workforce Pell is open to students who already hold a bachelor’s degree. The Department published the final rule in March 2026.

Workforce Pell is a genuine expansion, and short-program training has real value. The open question is the guardrails: short-term programs have historically had uneven outcomes, and the 70% thresholds plus state approval are the only screens standing between the new money and low-quality offerings.

Why a shorter menu matters

It is tempting to treat all of this as administrative reshuffling. It is not. Three structural points are worth being precise about.

A single income-driven plan removes the ability to choose the affordable one. When five IDR plans existed, a borrower whose circumstances changed could switch to whichever protected the most income. After July 1, 2026, new borrowers have one IDR plan. If RAP’s payment is higher than what an older plan would have charged, there is no alternative to move to.

The 30-year clock changes the math for the people IDR was built for. IDR’s forgiveness backstop matters most for borrowers whose incomes never rise enough to retire the debt — often those in lower-paying fields or with large graduate balances. Extending forgiveness from 20-25 years to 30 lengthens that exposure precisely for the population least able to pay it down.

The transition is landing in an already-strained system. The New York Fed reported that about 1 million borrowers fell into default in the last quarter of 2025 and another 2.6 million in the first quarter of 2026, pushing the student-loan delinquency rate above 10%. The Fed’s own researchers warned that a “second wave” of defaults could follow as former SAVE borrowers are pushed back into repayment. Moving 7 million people between plans through servicers that already have months-long processing backlogs is the kind of operational task that, done poorly, produces exactly that wave.

What to ask your representatives

• Will they support codifying an income-driven repayment option that protects a baseline of income and forgives balances on a 20-25 year timeline, rather than 30?
• What is being done to ensure the 7 million former SAVE borrowers are moved into qualifying plans without losing months of credit toward forgiveness?
• Do they support the Workforce Pell completion and job-placement thresholds — and will they back stronger oversight to keep low-quality short-term programs out of the program?
• How will they monitor the 2026 default surge, and what relief is available to borrowers who defaulted during the SAVE wind-down?