With all the excitement around graduation celebrations and starting your first job, it’s easy to forget about your student loans and the fact that repayment typically starts within six months of you no longer being enrolled as a full-time student. Also, although it hasn’t been making the front page news, there have been big changes recently regarding a once popular student loan repayment plan option that all borrowers should be aware of as they navigate the various repayment options available.
End of the SAVE Repayment Plan
If you are one of the seven million borrowers still enrolled under the SAVE repayment option, you may or may not be aware that it is officially ending on July 1, 2026, and there will be a 90 day transition period to move to another available repayment option. The SAVE repayment plan was a popular income-driven repayment (IDR) option first introduced under the Biden Administration but has been in legal limbo since 2024. Originally it was scheduled to sunset in July 2028, but in March 2026, a federal appeals court ordered the plan to end sooner, with July 1st being the new end date.
For borrowers still enrolled under the SAVE plan come July 1st, they will have a 90 day window to switch to a different repayment plan. If borrowers don’t proactively switch, they will likely be automatically enrolled in the Tiered Standard Repayment Plan, which can range from 10 to 25 year fixed payback schedules depending on the current balance of outstanding eligible student loans.
It’s imperative to keep your contact information current with your student loan servicer(s) so that you receive communication regarding next steps. If you have existing loans that are currently in forbearance due to the legal limbo around SAVE or are a recent graduate who will begin making student loan payments for the first time, you want to make sure you receive the most current information. Also, consider reaching out to your student loan servicer now to explore options that may be available to you so you have time to make an informed decision about which repayment may be best suited for your individual situation.
The Repayment Assistance Plan (RAP) and Tiered Standard Repayment
For new borrowers (or those with existing federal student loans who take out any new loans after July 1, 2026), RAP will be the only income-based repayment (IBR) plan available. It will replace SAVE this summer and eventually Pay as You Earn (PAYE) and Income-Contingent Repayment (ICR) which are due to end in July 2028.
Some key features to know about RAP:
· It has the longest repayment period (30 years) before any remaining debt can be cancelled, unless you work in qualifying public service. Current IBR plans allow for cancellation after 20 or 25 years.
· It provides the opportunity for a small principal reduction (up to $50/month) for certain borrowers.
· It cancels any interest not covered by the monthly calculated payment which helps prevent debt balances from increasing over time (although interest that accrues while loans are in deferment or was accrued prior to entering the RAP repayment plan is not eligible to be canceled).
After July 1st, the new Tiered Standard Repayment Plan will replace the current Standard Repayment Plan. Under the new Tiered Standard Repayment Plan, payments are fixed and repayment term lengths will vary between 10-25 years depending on the total balance outstanding. A differentiating feature of the Tiered Standard Repayment Plan is that it will allow borrowers with higher starting student loan balances more time to repay (potentially up to 25 years if they owe $100,000 or more). However, the tradeoff with a longer repayment period is that the borrower will pay more in interest than they otherwise would have with a shorter repayment period. With some exceptions, the current Standard Repayment Plan is generally 10 years.
Which Repayment Plan Is Best
Which repayment plan is best for you is one that deserves careful thought and consideration. There are pros and cons to each repayment plan and being proactive to understand your options now is better than being reactive when you may face a deadline in the coming months. Your student loan servicer will likely be able to provide an estimate of what your monthly payment might be under each available repayment option as well as answer general questions. If you have a complex situation (i.e. potentially seeking Public Student Loan Forgiveness) or are unsure how you are going to be able to transition to potentially higher monthly payments than what you are currently paying, it may be worthwhile seeking guidance from a qualified financial professional.
Securities and Advisory Services offered through LPL Financial, member FINRA/SIPC, a Registered Investment Advisor. LPL Financial and Croxall Capital Planning do not provide tax or legal advice. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.