Student Loan Repayment Options Will Be Cut to Two Plans Starting July 2026
Starting July 1, 2026, federal student loan borrowers will have access to only two repayment plans, down from the broader menu currently available. The change eliminates several income-driven options, including some zero-dollar payment plans for borrowers facing hardship.
Federal student loan borrowers will face a significantly narrower set of repayment options starting July 1, 2026. The Department of Education is limiting repayment plans to two options, eliminating several income-driven repayment plans that have been available in recent years.
Among the plans being eliminated are some that allowed borrowers experiencing hardship or unemployment to make zero-dollar monthly payments. Financial advisors say borrowers who currently rely on these plans should contact their loan servicers before July to understand their options.
The change comes as the student loan system is already under strain. More than 4 million Americans were technically in default at the end of 2025, defined as being at least 270 days overdue. Projections suggest the total number of defaulted borrowers could reach nearly 10 million, about 25 percent of the federal portfolio, once all processing is complete.
The Department of Education paused wage garnishment for defaulted borrowers in January 2026 to allow time for system reforms. That pause has no set end date, but experts warn that borrowers should not assume it will last indefinitely.
Borrowers in default have two main paths to resolve their status. Loan rehabilitation requires nine on-time payments over ten months and removes the default from the credit report. Loan consolidation combines defaulted loans into a new Direct Consolidation Loan, which can restore good standing if the borrower enrolls in an income-driven repayment plan or makes three voluntary payments.
Interest rates for the 2026-27 academic year are projected to rise, adding to the cost burden for new borrowers.
