Student Loan Relief: What to Know Before December 2025
As the year-end approaches, federal student loan borrowers in the USA face several critical deadlines and legislative changes that could significantly impact their finances. The window for certain tax benefits is closing, and the entire Income-Driven Repayment (IDR) system is undergoing a massive legislative overhaul (the OBBBA Act).
1. The Critical Deadline: Tax-Free Forgiveness Ends 🛑
This is the most urgent financial concern for borrowers nearing forgiveness:
Forgiveness Becomes Taxable on January 1, 2026
Currently, any federal student loan debt forgiven under an IDR plan (PAYE, IBR, SAVE) is **EXCLUDED from your gross taxable income** at the federal level. This tax exemption, passed in 2021, is set to **expire on December 31, 2025**.
- Impact: If your forgiveness is finalized on or after **January 1, 2026**, the forgiven amount will likely be counted as taxable income by the IRS, resulting in a potentially massive tax bill.
- Action to Take: If you are close to reaching the 20/25-year forgiveness mark under any IDR plan or PSLF, contact your servicer immediately to ensure all consolidation and payment certification paperwork is submitted and processed **before the end of 2025**.
2. Repayment Plan Overhaul (The OBBBA Act) 🛠️
New legislation (The One Big Beautiful Bill Act, or OBBBA, signed July 2025) is phasing out the current complex system of IDR plans and replacing them with a simplified model.
The Phasing Out of Current Plans
- Current IDR Plans (IBR, PAYE, SAVE): These will be eliminated and replaced by the new **Repayment Assistance Program (RAP)**, which is set to be fully implemented by **July 1, 2026**.
- Current Borrower Choice: If you are currently enrolled in an IDR plan (and do not take out a new federal loan after 7/1/26), you can remain in your current plan, but you must officially **enroll or re-certify your plan by June 30, 2028**. After that, all borrowers will be moved to the new RAP.
- Action Point: New students and borrowers should plan their loans to align with the more simplified RAP structure starting mid-2026.
3. Status of the IDR Account Adjustment ⏳
The Department of Education's one-time account adjustment is designed to retroactively give borrowers credit for past periods of forbearance and deferment toward the 20/25-year forgiveness timeline. This is vital for older loans.
- **Check Your Tracker:** Borrowers must regularly check their official **payment count tracker** on the StudentAid.gov website to verify that old periods of non-payment are being properly credited.
- PSLF Credit:** This adjustment is also benefiting Public Service Loan Forgiveness (PSLF) borrowers who may now qualify years earlier than expected. If you believe you qualify, ensure your Employment Certification Form (ECF) is up to date.
4. PLUS Loan Borrowing Caps (Effective July 2026)
The OBBBA legislation also introduces significant new limitations on PLUS loans:
| Loan Type | New Rule (Effective July 1, 2026) |
|---|---|
| Grad PLUS Loans | Phased Out. New graduate students cannot take out Grad PLUS loans. |
| Parent PLUS Loans | Capped. $\text{\$20,000}$ per student per year, with a $\text{\$65,000}$ lifetime limit per dependent. |
Parents and graduate students planning to use these loans in the future should complete borrowing for the 2025-2026 academic year before the **July 1, 2026**, deadline to avoid the new caps.
Access our comprehensive guides on navigating the student loan servicing system.
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