WASHINGTON, D.C. — In a significant shift for the federal student loan system, the U.S. Department of Education announced on December 22, 2025, that it has completed a major update to the Income-Based Repayment (IBR) plan. The move, part of the broader implementation of President Donald Trump’s “One Big Beautiful Bill Act” (OBBBA), eliminates a long-standing barrier for mid- and high-income earners by removing the “partial financial hardship” requirement for enrollment.
For years, the IBR plan was reserved primarily for those whose debt levels were high relative to their income. However, with the system updates finalized this week, millions of borrowers who were previously “too wealthy” for income-driven relief can now cap their payments at a percentage of their discretionary income.
The End of “Partial Financial Hardship”
Previously, a borrower only qualified for IBR if their calculated monthly payment under the plan was less than what they would pay under a Standard 10-Year Repayment Plan. This “hardship test” effectively screened out professionals—such as doctors, lawyers, and mid-career public servants—whose incomes had risen since graduation but who still struggled with large debt balances.
What Changes Today?
- Expanded Eligibility: Borrowers can now enroll in IBR regardless of how much they earn.
- Payment Caps: While the hardship test is gone, IBR payments remain capped at the Standard 10-Year amount. This ensures that even high earners will never pay more than they would on a basic 10-year plan.
- Formula Consistency:
- Pre-July 2014 Borrowers: Payments are 15% of discretionary income with forgiveness after 25 years.
- Post-July 2014 Borrowers: Payments are 10% of discretionary income with forgiveness after 20 years.
Implementing the “One Big Beautiful Bill Act” (OBBBA)
The OBBBA, signed into law on July 4, 2025, serves as the cornerstone of the Trump administration’s effort to simplify a “broken” student loan system. By removing the financial hardship barrier, the administration aims to consolidate various complex plans into a more streamlined process.
However, the bill also signals the end of more generous Biden-era options. The SAVE (Saving on a Valuable Education) Plan has been officially phased out following a settlement with the state of Missouri. Borrowers currently in the “SAVE Forbearance” are being urged to switch to IBR if they wish to continue accruing credit toward loan forgiveness.
Restarting the Forgiveness Engine
A major highlight of the December 22 announcement is the resumption of student loan forgiveness processing. Throughout much of 2025, a backlog caused by court injunctions and system overhauls left many borrowers in limbo.
The Education Department confirmed that it has restarted discharging balances for those who have reached their 20- or 25-year payment thresholds. Importantly, thanks to a court settlement with the American Federation of Teachers (AFT), borrowers who reach eligibility in 2025 will not be subject to the “Tax Bomb” (federal income tax on forgiven debt), even if the Department doesn’t finish processing their discharge until 2026.
Critical Deadlines and Actions for Borrowers
As the system transitions toward the new Repayment Assistance Plan (RAP) and the “New Standard” plan in 2026, borrowers should take the following steps immediately:
- Reapply if Previously Denied: If you were denied IBR in the past due to your income, the Department encourages you to reapply via StudentAid.gov.
- Parent PLUS Consolidation: Parent borrowers must consolidate their loans into a Direct Consolidation Loan by July 1, 2026, to access IBR.
- Address the “SAVE” Gap: If you are on the SAVE plan, your time in forbearance currently does not count toward PSLF or IDR forgiveness. Switching to IBR is the primary way to restart your progress.
The Road to 2026: A Two-Track System
By July 2026, the administration plans to further condense the repayment landscape. New borrowers will generally choose between:
- The New Standard Plan: A tiered fixed-payment plan.
- The Repayment Assistance Plan (RAP): A new income-based option that can charge between 1% and 10% of income but may require a longer 30-year forgiveness timeline.
“We are turning a maze of options into a clear path,” the Department stated. “Whether you are a low-income worker or a high-earning professional, there is now a predictable, income-capped way to manage your debt.”
Would you like me to calculate what your new monthly payment might look like under the updated IBR rules, or do you need help finding the consolidation form for Parent PLUS loans?
Student Loan Update: Trump Admin Overhauls Repayment Plans
This video provides a detailed breakdown of the legislative changes and practical advice for borrowers deciding whether to switch to the updated IBR plan.