Career & Finance Topic

Make residency payments count.

Federal student loans after the 2025 reconciliation law: RAP vs IBR, the end of SAVE, PSLF rules and litigation, the plan to pick in residency, when refinancing makes sense, and how forgiveness is taxed.

Reviewed October 2026 · verify against current guidelines

Student loans · 1 of 6

The law that rewrote repayment.

One law, two names

Public Law 119-21 was signed on July 4, 2025. Most people call it the One Big Beautiful Bill Act (OBBBA). The Department of Education now calls it the Working Families Tax Cuts Act. They are the same law. The Department put the loan changes into regulation in a final rule published May 1, 2026, effective July 1, 2026.

What changed, and when

July 4, 2025IBR opens to more borrowers: the partial-financial-hardship test is gone. RAP payments are written into PSLF.
July 1, 2026RAP and the Tiered Standard plan launch. No new Grad PLUS loans. New graduate and professional loan limits start.
July 1, 2027For loans first disbursed on or after this date, there is no economic hardship or unemployment deferment, and general forbearance is capped at 9 months in any 24.
July 1, 2028PAYE and ICR end. Borrowers still in them must pick RAP, IBR or a fixed plan. If you don't pick, you are moved to RAP, or to IBR for loans RAP can't take.

New federal borrowing limits (enrollment periods starting July 1, 2026 or later)

Professional students (MD, DO)$50,000 per year; $200,000 aggregate.
Graduate students$20,500 per year; $100,000 aggregate.
Lifetime cap$257,500 for most borrowers.
Grad PLUSNo new loans for periods of instruction beginning on or after July 1, 2026.
Interim exceptionIf you were enrolled on June 30, 2026 and already had a Direct Loan for that program, you keep the old limits, including Grad PLUS, for the shorter of three academic years or the rest of the program.
Gap funding — Students not covered by the interim exception will have to fund anything above the caps with private loans. Private loans get no PSLF, no RAP or IBR, and no federal forbearance.
RAP Repayment Assistance PlanIBR Income-Based RepaymentPAYE Pay As You EarnICR Income-Contingent RepaymentPSLF Public Service Loan ForgivenessGrad PLUS Direct PLUS Loan for graduate or professional students
Student loans · 2 of 6

Know the plans still standing.

Repayment plans, October 2026

RAP1–10% of your total AGI ÷ 12, minus $50 a month per dependent. $10 minimum. Unpaid interest is waived after each on-time payment. If an on-time payment cuts principal by less than $50, ED tops up your principal reduction to the lesser of $50 or your payment. Any balance is discharged after 360 qualifying payments (30 years). Counts for PSLF.
IBROnly if you have received no Direct Loan on or after July 1, 2026, consolidation loans included. 10% of discretionary income (AGI above 150% of the poverty guideline) if you first borrowed on or after July 1, 2014, with forgiveness at 20 years; 15% and 25 years if you borrowed earlier. Payment is capped at the 10-year standard amount. Counts for PSLF.
PAYE, ICRMostly closed to new enrollees, and lost to anyone who receives a Direct Loan on or after July 1, 2026. Both end by July 1, 2028.
Tiered StandardFixed payments over 10 to 25 years, set by balance (25 years at $100,000 or more). Does not count for PSLF.
10-year StandardCounts for PSLF, but leaves little or nothing to forgive.

How RAP's percentage works

AGI up to $10,000 means a $10 monthly payment. From $10,001 to $20,000 the rate is 1%, and it rises one point per $10,000 band, reaching 10% above $100,000. The rate applies to your whole AGI, not just the part above a threshold. Crossing a band edge raises the payment on every dollar.

One new loan changes every loan — If you receive any new Direct Loan, including a consolidation loan, on or after July 1, 2026, all of your federal loans can only be repaid under RAP or Tiered Standard. IBR, PAYE and ICR are lost for your older loans too. Check what you would lose before you consolidate or borrow again.
AGI adjusted gross income (Form 1040)IDR income-driven repaymentED U.S. Department of Education
Student loans · 3 of 6

SAVE is over. Move.

How SAVE ended

2024Courts blocked SAVE. Enrolled borrowers were moved into a SAVE forbearance.
Feb 18, 2025The Eighth Circuit ordered the entire SAVE rule enjoined.
Aug 1, 2025Interest began accruing again on SAVE-forbearance loans.
Dec 9, 2025ED and Missouri asked the court to enter a settlement judgment.
Mar 10, 2026The federal court in Missouri vacated the SAVE rule. One provision survived: the list of deferment and forbearance periods that count toward IDR.

If you were in SAVE

  • No payments are due in SAVE forbearance, but interest has accrued since August 1, 2025.
  • Servicers began sending notices on July 1, 2026, in groups, and will notify every SAVE borrower before the end of 2026. You get 90 days to choose a plan, then a final 30-day notice. Many early deadlines have already passed, so check your servicer inbox now.
  • Miss the final deadline and you are placed in a fixed plan. With no loan made on or after July 1, 2026, that is the Standard plan; the 10-year Standard counts for PSLF. If you have a newer loan in repayment, it is Tiered Standard, which does not.
  • Don't wait for the notice. Apply for RAP or IBR (if still eligible) on StudentAid.gov, and consent to IRS data sharing so it processes faster.
  • Check your PSLF count. Months that weren't credited may be recoverable through PSLF Buyback (see below).
Don't park loans in forbearance during residency — Interest accrues. Apart from a short list of exceptions, forbearance months earn no PSLF credit, and residency forbearance is not on that list. On RAP even the exceptions don't count, and those months can't be bought back. A payment based on a resident income is usually small, and every qualifying month counts.
Student loans · 4 of 6

PSLF: 120 payments, right employer.

The requirements

  • Direct Loans only. Consolidate FFEL or Perkins loans to make them eligible, but read the warning above first: a consolidation loan made on or after July 1, 2026 ends IBR for all your loans.
  • Full-time work for a qualifying employer, meaning an average of 30 hours a week or more.
  • 120 qualifying monthly payments. They don't have to be consecutive. Pay at least the full scheduled amount; installments that add up to it count. Use autopay.
  • A qualifying plan: RAP, IBR, PAYE, ICR (payments through June 30, 2028), or the 10-year Standard. Tiered Standard does not qualify.
  • Employed at a qualifying employer when you make the 120th qualifying payment and when you apply for forgiveness.
  • On RAP, only on-time payments count. While you are enrolled in RAP, the deferment and forbearance months that normally count for PSLF (cancer, military, AmeriCorps, administrative forbearance and so on) don't count, and those months can't be bought back.

Employer type

QualifiesU.S. federal, state, local or tribal government, including the military. Section 501(c)(3) nonprofits. Some other nonprofits that provide qualifying public services.
Does not qualifyFor-profit employers, including for-profit hospitals and contracted physician groups. Labor unions. Partisan political organizations.

Residents: check your employer of record

Many teaching hospitals and universities are 501(c)(3) or government employers, but not all of them. What counts is the entity that employs you, usually the name on your W-2. Two exceptions also count: a W-2 issued by a payroll contractor working for a qualifying employer, and work as a contracted employee of a qualifying employer in a position that state law bars it from filling with a direct employee, as with some physicians. Look your employer up in the PSLF Employer Search. Certify your employment every year and every time you change employers.

The 2025 employer rule: vacated, but under appeal — A final rule published October 31, 2025 (effective July 1, 2026) would have let ED disqualify employers it found had a "substantial illegal purpose." On June 30, 2026, federal courts in D.C. and Massachusetts vacated it. ED removed the matching attestation from the PSLF form (notice of July 13, 2026). On August 27, 2026, ED appealed both judgments, and the appeals are pending. The vacated text still appears in the eCFR. If ED wins on appeal, the rule could return.

PSLF Buyback

Once you have 120 months of approved qualifying employment, you can buy back months spent in a non-qualifying deferment or forbearance. You pay at least what an IDR plan would have charged at the time, based on your income then. Request it through PSLF Reconsideration. ED or your servicer sends an agreement, and you have 90 days to pay. Buyback is not available for months spent in RAP or Tiered Standard.

FFEL Federal Family Education Loan (older, non-Direct)TEPSLF Temporary Expanded PSLF
Student loans · 5 of 6

Play residency for PSLF.

Why a low payment now matters

Under PSLF, every dollar you don't pay during the 120 months is forgiven tax-free. Residency is when your income and your payment are lowest. Three to seven years of training can cover 36 to 84 of the 120 payments. Those months are cheap credit. This assumes you still have IBR or RAP for your loans: current MS4s who take 2026–27 disbursements, and anyone who consolidates on or after July 1, 2026, are limited to RAP or Tiered Standard for all their loans.

Example: single, no dependents, AGI $65,000 (2026)

RAP6% × $65,000 = $3,900 a year → $325/month.
IBR, borrowed after July 1, 2014 (no loan on or after July 1, 2026)10% × ($65,000 − $23,940, which is 150% of the $15,960 poverty guideline) = $4,106 a year → about $342/month.
IBR, borrowed before July 1, 2014 (same condition)15% of the same amount → about $513/month.

Residency playbook

  • Put every federal loan on RAP or IBR as soon as repayment begins. Don't sit in forbearance. Don't consolidate or take a new Direct Loan on or after July 1, 2026 without checking what you lose: it ends IBR for all your loans.
  • Certify income with your latest tax return. In intern year that is often a med-school year with little income. That can mean a $10 RAP payment or, if you still have IBR, a $0 IBR payment, and both count.
  • Pre-tax 403(b) and 457(b) contributions lower your AGI, which lowers your RAP or IBR payment.
  • Married? Filing separately keeps your spouse's income out of the RAP and IBR calculation. It may cost more in tax, so run both ways.
  • RAP vs IBR: on a resident income the payments are close. Compare them in the StudentAid.gov Loan Simulator using your real numbers.
  • Certify employment every year, and before any job change.
Count months before you sign — Payments made while you work for a for-profit group or hospital don't count. Before you take a job after training, know how many qualifying payments you have left.
Student loans · 6 of 6

Refinance last. Know the tax.

When refinancing makes sense

Refinancing turns federal loans into a private loan. You permanently lose PSLF, RAP and IBR, federal deferment and forbearance, and federal discharge protections. It is worth considering only when PSLF is off the table, for example when you are headed to a for-profit or private-practice job. You also need stable attending income, a meaningfully lower fixed rate, and a plan to pay the loan off fast.

Before you refinance

  • Don't refinance during training if there is any realistic chance you'll pursue PSLF.
  • Have an emergency fund and own-occupation disability insurance in place first.
  • Compare the refinance offer to your RAP and 10-year Standard payments, not to your current forbearance.
  • You can refinance in pieces later. You can never turn a private loan back into a federal one.

Is forgiveness taxed? (federal)

PSLFNot taxable. It is excluded under 26 U.S.C. 108(f)(1).
RAP or IBR forgiveness at 20–30 yearsTaxable for discharges after December 31, 2025. The American Rescue Plan exclusion covered 2021–2025 only, and the 2025 law did not extend it.
Death or total and permanent disabilityExcluded permanently for discharges after December 31, 2025, for both federal and private student loans. You must list your SSN on the return.
State income taxVaries by state.
IDR tax bill — If your path is 20 to 30 years of IDR rather than PSLF, the forgiven balance is income in the year it is forgiven. Save for that tax as you go.
ARPA American Rescue Plan Act of 2021OBBBA One Big Beautiful Bill Act (Pub. L. 119-21)SSN Social Security number

Educational reference only — not financial, tax or legal advice. Rules change; confirm with the official source, your plan documents, or a fee-only advisor.

Sources

Verify against current guidelines and local protocol before acting.

  1. Public Law 119-21, 139 Stat. 72, signed July 4, 2025. Commonly called the One Big Beautiful Bill Act (OBBBA); the Department of Education now refers to it as the Working Families Tax Cuts Act.
  2. Pub. L. 119-21 §82001(b), amending HEA §455(d)(1), (d)(6) and (d)(7)(A),(C): a borrower who receives a loan on or after July 1, 2026 (including one who also has older loans) may repay all loans only under the Tiered Standard plan or RAP. govinfo.gov/content/pkg/PLAW-119publ21.
  3. U.S. Department of Education. Reimagining and Improving Student Education (RISE): Federal Student Loan Program Final Regulations. 91 FR 23768, May 1, 2026; effective July 1, 2026 (34 CFR 685.204, 685.205, 685.208, 685.209). federalregister.gov / govinfo.gov.
  4. Federal Student Aid. SAVE Plan Borrowers: FAQs About Choosing a Different Repayment Plan. studentaid.gov/articles/save, accessed October 18, 2026.
  5. Federal Student Aid. Dear Colleague Letter GEN-25-04: Federal Student Loan Program Provisions Effective Upon Enactment Under the OBBBA. July 18, 2025. fsapartners.ed.gov.
  6. Federal Student Aid. Public Service Loan Forgiveness (PSLF); PSLF Buyback; Income-Driven Repayment Plans. studentaid.gov, accessed October 18, 2026.
  7. 34 CFR 685.219, Public Service Loan Forgiveness. eCFR, current as of October 15, 2026.
  8. U.S. Department of Education. Fact Sheet: The Trump Administration Is Simplifying Student Loan Repayment (RAP and Tiered Standard plans). ed.gov, page last reviewed June 11, 2026.
  9. U.S. Department of Education. Next steps for borrowers enrolled in the SAVE Plan. ed.gov press release, March 2026.
  10. Missouri v. Biden, 128 F.4th 979 (8th Cir. Feb. 18, 2025); Missouri v. Trump, No. 4:24-cv-00520-JAR (E.D. Mo.), Order of March 10, 2026 (ECF 102) vacating the SAVE final rule (88 FR 43820).
  11. U.S. Department of Education. U.S. Department of Education Continues to Improve Federal Student Loan Repayment Options, Addresses Illegal Biden Administration Actions. ed.gov press release (page last reviewed January 5, 2026): interest charged on SAVE-forbearance loans starting August 1, 2025.
  12. U.S. Department of Education. William D. Ford Federal Direct Loan Program final rule (PSLF qualifying-employer changes). 90 FR 48966, October 31, 2025; scheduled effective July 1, 2026.
  13. U.S. Department of Education. PSLF & TEPSLF Certification and Application, information collection notice. 91 FR 42949, July 13, 2026 (employer attestation removed after the June 30, 2026 vacatur).
  14. Congressional Research Service. Public Service Loan Forgiveness: Recent Legal Developments (LSB11472), updated August 31, 2026.
  15. U.S. Department of Health and Human Services. Annual Update of the HHS Poverty Guidelines. Federal Register, January 15, 2026: $15,960 for a household of one (48 contiguous states and DC).
  16. 26 U.S.C. 108(f)(1) and (f)(5), as amended by Pub. L. 119-21 §70119 (applies to discharges after December 31, 2025). Cornell LII / uscode.house.gov.