Major Student Loan Changes in 2026 Bring New Rules and Repayment Plans

The federal student loan system is undergoing its most significant transformation in years. Starting in 2026, millions of borrowers will face new repayment rules, the end of a popular plan, and the return of strict collections. The changes will affect nearly every borrower with federal loans.

These shifts stem from policy decisions and legal settlements. According to NPR, the landscape is set to change dramatically. Borrowers must prepare for a new financial reality.

SAVE Plan Termination Forces Borrowers to Switch

The SAVE repayment plan is officially ending. This follows a legal settlement announced by the U.S. Education Department. The plan was challenged in court and could not continue.

Roughly 7 million borrowers are currently enrolled in SAVE. They must now select a different income-driven plan. Many will see their monthly payments increase as a result.

Interest has been accruing on loans since last August. This adds to the financial pressure for those transitioning. The search for an affordable alternative is urgent for many families.

Two New Repayment Options Replace Old System

Beginning July 1, 2026, a new two-plan system takes effect. Future borrowers will choose between just two options. This is a major simplification of the previous complex menu.

The Standard Plan offers a fixed payment over 10 to 25 years. It functions like a traditional loan. Payments do not change based on a borrower’s income.

The Repayment Assistance Plan (RAP) is income-driven. Payments are based on a percentage of discretionary income. Any remaining interest is waived by the government each month.

However, forgiveness under RAP takes 30 years. This is longer than the 20-25 year timeline under older plans. Borrowers will carry debt for a greater portion of their working lives.

Wage Garnishment Resumes for Borrowers in Default

The government will restart wage garnishment in early 2026. This action targets borrowers who are in default. Default means a loan is 270 days or more past due.

The Education Department will send notices starting the week of January 7. Initial notices will go to about 1,000 borrowers. More will follow in subsequent waves.

Garnishment can take up to 15% of a person’s disposable pay. This is a powerful collection tool. It aims to recoup funds without requiring voluntary payments.

Reports indicate over 5.5 million borrowers are currently in default. Another 3.7 million are severely delinquent. The resumption of garnishment could impact household budgets nationwide.

Graduate Student Borrowing Faces Strict New Caps

New borrowing limits for graduate students begin in July 2026. Annual loan limits will be significantly reduced. This change was passed by Congress.

Most graduate students will face an annual cap of $20,500. Students in certain professional programs can borrow up to $50,000 yearly. Parent PLUS loans for undergraduates are capped at $65,000 per child.

This eliminates the Graduate PLUS loan program. That program previously allowed borrowing up to the full cost of attendance. The new caps may not cover tuition at many institutions.

Experts warn this will push students toward private loans. Private loans often have higher, variable interest rates. They also lack the flexible repayment options of federal loans.

The 2026 student loan changes represent a hard reset for the system. Borrowers must proactively understand the new rules to navigate this unfamiliar terrain successfully.

Thought you’d like to know

What is happening to the SAVE repayment plan?

The SAVE plan is ending due to a legal settlement. Approximately 7 million borrowers enrolled in SAVE must switch to a different repayment plan. Their monthly payments may increase as a result of this change.

When does wage garnishment for student loans restart?

The U.S. Education Department will restart wage garnishment the week of January 7, 2026. It will first notify borrowers who have been in default for over a year. Garnishment can withhold up to 15% of a borrower’s disposable income.

What are the two new repayment plans starting in 2026?

Starting July 1, 2026, new borrowers will choose between the Standard Plan and the Repayment Assistance Plan (RAP). The Standard Plan has fixed payments. The RAP plan bases payments on income but extends the forgiveness timeline to 30 years.

How do the new graduate student loan caps work?

New annual borrowing limits for graduate students start in July 2026. Most graduate students can borrow a maximum of $20,500 per year. Professional students in fields like medicine and law have a higher annual cap of $50,000.

What should a borrower in default do now?

Borrowers in default should contact their loan servicer immediately. Options to get out of default include loan rehabilitation or consolidation. Taking action before garnishment starts can protect your wages and credit.