Trump Administration Ends SAVE Plan, Introduces New Federal Student Loans Limits
The federal student loans system is undergoing its most significant transformation in decades, with sweeping changes that will affect how millions of Americans borrow and repay their educational debt. From the elimination of popular repayment plans to strict new borrowing caps, these modifications represent a fundamental shift in federal student loan policy that borrowers need to understand immediately.
SAVE Plan Officially Terminated
The Trump Administration and Missouri reached an agreement on December 9, 2025, that will permanently end the Biden Administration’s SAVE Plan, which had been blocked by courts since 2024. The settlement prevents any new enrollments in the program and requires all current SAVE borrowers to transition to alternative repayment plans.
The SAVE plan had been one of the most generous income-driven repayment options, offering monthly payments as low as $0 for low-income borrowers and expedited loan forgiveness. However, officials in the Trump administration’s Education Department described the program as a “deceptive scheme” that placed an unfair burden on taxpayers.
Over 7 million borrowers who enrolled in SAVE have been in forbearance since summer 2024 while legal challenges played out. Interest accrual resumed on August 1, 2025, for these borrowers, though it was not applied retroactively.
One Big Beautiful Bill Act Introduces Strict Borrowing Limits
Starting July 1, 2026, the One Big Beautiful Bill Act will cap annual loans for new borrowers at $20,500 for graduate students with a $100,000 aggregate limit, and $50,000 for professional students with a $200,000 aggregate limit. Previously, graduate students could borrow up to the full cost of attendance through the Grad PLUS program.
The legislation eliminates the Federal Direct Graduate PLUS Loan program for new borrowers effective July 1, 2026. This change means graduate students will no longer be able to borrow federal funds up to their full cost of attendance, potentially creating significant financing gaps for many students.
Parent PLUS Loans will also face new restrictions, with annual limits set at $20,000 per student and aggregate limits of $65,000 per student total. Previously, parents could borrow up to the full cost of attendance minus other aid.
Current students have some protection through legacy provisions. Those enrolled in programs before July 1, 2026, who borrowed federal loans for that specific program can continue under current rules for up to three additional years or until program completion.
New Repayment Plans Replace Existing Options
The federal student loan repayment system is being dramatically simplified. Beginning in late December 2025, Income-Based Repayment will become the most widely available income-driven plan, with a key barrier—the “partial financial hardship” requirement—removed, allowing higher-income borrowers to access the program for the first time.
Other existing plans, including SAVE, Pay As You Earn, and Income-Contingent Repayment, will be phased out and become obsolete by July 2028.
On July 1, 2026, the Department of Education will introduce the Repayment Assistance Plan, a new income-driven option. However, RAP’s loan forgiveness timeline extends to 30 years, longer than current plans that typically forgive after 20 to 25 years.
Tax Implications for Student Loan Forgiveness
The federal tax exemption for certain forms of loan forgiveness will expire on December 31, 2025. Under the American Rescue Plan Act, borrowers whose loans were forgiven between January 1, 2021, and December 31, 2025, have been exempt from federal taxes on forgiven balances.
Starting in 2026, borrowers who qualify for forgiveness through income-driven repayment plans will owe federal income tax on the forgiven amount. For example, if $30,000 in loans is forgiven, that amount will be added to the borrower’s taxable income for that year.
Public Service Loan Forgiveness remains tax-free and will continue to be exempt from federal taxation.
Public Service Loan Forgiveness Program Modified
The Department of Education issued final regulations on October 31, 2025, that exclude organizations engaging in activities with a “substantial illegal purpose” from PSLF eligibility. The new rules take effect July 1, 2026.
Historically, PSLF eligibility was determined by an organization’s tax-exempt status. The new regulations introduce a conduct-based test, potentially disqualifying certain employers even if they maintain 501(c)(3) status with the IRS.
What Borrowers Should Do Now
For borrowers currently in the SAVE forbearance, the Education Department will begin outreach in the coming weeks about transitioning to new repayment plans. Most experts recommend enrolling in the Income-Based Repayment plan as the best option for most borrowers.
Those pursuing Public Service Loan Forgiveness can use the PSLF Buyback option to receive credit for months spent in SAVE forbearance, provided they were working for a qualifying employer during that period.
As of recent data, approximately 5.5 million borrowers are currently in default, with another 3.7 million more than 270 days late on payments. An additional 2.7 million are in earlier stages of delinquency, bringing the total number of struggling borrowers to about 12 million.
Student Loan Awareness Gap
According to a recent survey by The Institute for College Access & Success, 15% of federal student loan borrowers have heard “nothing at all” about income-based repayment plans, while nearly a quarter were unaware of the Public Service Loan Forgiveness program.
Financial advisors emphasize the importance of borrowers understanding their options. Many end up paying more than necessary simply because they aren’t aware of available relief programs.
Looking Ahead
The student loan landscape will continue evolving through 2026 as the Department of Education finalizes regulations and updates its systems. The changes represent what officials call “a sea change in higher education” designed to hold universities accountable for outcomes and reduce tuition costs.
For borrowers planning to use federal loans to finance education in 2026-27 or beyond, financial aid experts strongly recommend reviewing these updates carefully and considering how new limits might affect financing plans. Those anticipating costs that exceed new federal limits should begin researching private student loan options or preparing personal savings now.
The transition affects not just current borrowers but future students as well, fundamentally reshaping how Americans will finance higher education for years to come.
Key Takeaways for Student Loans Borrowers:
- SAVE Plan ended December 2025; all borrowers must switch to alternative plans
- Graduate PLUS loans eliminated for new borrowers starting July 2026
- New annual borrowing caps: $20,500 for graduate students, $50,000 for professional students
- Parent PLUS loans capped at $20,000 per year, $65,000 lifetime per student
- Income-Based Repayment expanding in December 2025 to accept more borrowers
- Tax-free loan forgiveness ends December 31, 2025
- New Repayment Assistance Plan launches July 2026 with 30-year forgiveness timeline
- PSLF continues but with new restrictions on employer eligibility
Borrowers should contact their loan servicers or visit StudentAid.gov for personalized guidance on navigating these changes.