If you have federal student loans, you need to pay attention right now. Major changes are hitting on July 1, 2026, and if you don’t act, the government will make decisions for you.
The SAVE Plan Is Dead
The SAVE Plan — the income-driven repayment plan that 7.5 million borrowers enrolled in — has been ruled unlawful. It’s over.
Starting July 1, federal loan servicers will send notices telling borrowers to exit SAVE and pick a new repayment plan within 90 days. If you don’t choose, you’ll be automatically enrolled in either the Standard Repayment Plan or the new Tiered Standard Plan.
Neither of those may be the best option for you. Don’t let the government decide by default.
The New Option: RAP
A new income-driven repayment plan called RAP (Repayment Assistance Plan) launches July 1. Your monthly payment is based on your income and number of dependents. This gives borrowers more affordable monthly payments while maintaining repayment obligations.
If you’re on SAVE right now, RAP is probably your best replacement. But you need to actively enroll.
The Tax Bomb Nobody’s Talking About
Here’s the big one: as of January 1, 2026, student loan forgiveness is now taxable at the federal level.
The temporary exemption that made forgiveness tax-free expired. If you qualify to have $30,000 in loans forgiven after years of income-driven repayment, you now owe federal income tax on that $30,000. Depending on your tax bracket, that could be a $5,000-$7,000 tax bill you didn’t expect.
This changes the math on whether forgiveness programs are worth pursuing.
Gen Z’s Student Loan Reality
13.1 million Gen Zers have student loans — that’s 43.5% of Gen Z adults aged 18 and older. The average Gen Z balance is $22,948, which is lower than older generations but still significant when combined with credit card debt and cost of living.
What to Do Before July 1
1. Check your current plan. Log into studentaid.gov and see what repayment plan you’re on.
2. If you’re on SAVE, choose a replacement now. Don’t wait for the automatic switch. Research RAP and the Standard plan.
3. Factor in the tax bomb. If you’re pursuing forgiveness, start saving for the eventual tax bill. Set aside money each month.
4. Run your numbers. Use our free budget tools to see how your loan payment fits into a 50/20/30 budget.
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