What the ‘Big Beautiful Bill’ Means for Your Student Loans — Payments, Forgiveness, and Taxes

What the ‘Big Beautiful Bill’ Means for Your Student Loans — Payments, Forgiveness, and Taxes

Student loans have always been complicated, but a new bill signed in July 2025 may change the rules of the game for millions of Americans. Nicknamed the “One Big Beautiful Bill,” this sweeping legislation doesn’t just trim programs — it rewrites the entire student loan playbook.

In this guide, we’ll break down exactly what this means for your student loans, monthly payments, forgiveness options, and the looming tax consequences that could take borrowers by surprise.

How We Got Here: A Quick Recap

Over the past five years, student loan repayment has gone through a rollercoaster of changes:

• 2020: CARES Act paused payments and set interest to 0% due to COVID.
• 2021–2022: Multiple extensions of the payment pause.
• 2023: Payments resumed under the Biden administration. The SAVE Plan was introduced to reduce monthly payments for low-income borrowers.
• 2024: The Supreme Court struck down Biden’s $10k forgiveness plan. Smaller cancellation programs continued.
• 2025: The new "Big Beautiful Bill" aims to simplify everything — but not without consequences.

Two Repayment Plans Going Forward

Under the new law, borrowers will choose between two repayment options:

1. Fixed Repayment Plan

• Similar to a traditional mortgage.
• Borrowers make consistent monthly payments.
• Standard 10-year term (or extended plans up to 30 years based on balance).

2. Repayment Assistance Plan (RAP)

• Based on income.
• Monthly payments capped at a percentage of discretionary income.
• Forgiveness kicks in after 30 years if a balance remains.
• Replaces SAVE, REPAYE, PAYE, and IBR.

The Department of Education claims this will reduce confusion. But in reality, borrowers who were counting on the more generous SAVE Plan may now face higher payments and longer repayment periods.

Public Service Loan Forgiveness (PSLF) Just Got Trickier

One of the biggest shakeups is to PSLF. The new rules:

• Tighten the definition of a qualifying employer.
• Exclude some nonprofits and advocacy organizations.
• Require certification of eligible employment annually.

For example, a nurse working at a hospital affiliated with a religious or advocacy group might no longer qualify — even after making years of payments. This creates new uncertainty for public servants who previously relied on PSLF as part of their financial plan.

Forgiveness Could Soon Be Taxable

Under the American Rescue Plan Act, student loan forgiveness is tax-free only through the end of 2025. The new bill does not extend this exemption.

If you receive loan forgiveness in 2026 or later, the amount forgiven could be counted as ordinary income on your tax return. This could push many borrowers into a higher tax bracket.

Example:

Let’s say you earn $45,000 and receive $30,000 in loan forgiveness in 2026. You could be taxed as if you earned $75,000. Depending on your state and deductions, that might mean owing $5,000–$9,000 in taxes you didn’t expect.

What About State Taxes?

Even if federal tax exemption still applies (through 2025), many states already tax forgiven debt. Here are some examples:

Real-Life Scenarios

Emily, Nurse in Texas

Emily earns $50,000 working at a nonprofit hospital. She has $28,000 in student debt and was enrolled in the SAVE Plan. Under RAP, her payments will increase, and her employer might no longer qualify her for PSLF. If she receives forgiveness in 2026, it will be federally taxable — but Texas has no state income tax.

Juan and Maria, Married in Illinois

Together, Juan and Maria earn $95,000. They have $80,000 in student loans. Under the new law, their joint income could increase monthly RAP payments significantly. Filing separately might help — but could increase their overall tax burden. Their forgiveness in 2026 will be taxed federally and possibly by Illinois.

Married Borrowers: Watch Your Filing Status

Under RAP, your household income determines your payment. That means:

• If you file jointly, both incomes count.
• If you file separately, only the borrower’s income may be counted (but not always).

This makes tax strategy and planning even more important — something most borrowers aren’t prepared for.

What You Can Do Now

• Reevaluate Your Repayment Plan: Confirm which plan you’re currently in. Look ahead at whether RAP makes sense.
• Check Employer Eligibility for PSLF: Ask for documentation. Re-certify annually.
• Prepare for 2026 Taxes: Estimate tax consequences of forgiveness. Consider adjusting withholdings. Talk to a tax preparer about state rules.
• Plan Strategically If You're Married: Use tax software or a planner to compare filing jointly vs separately.
• Use Tools Like Bountisphere: Track monthly payments. Forecast your savings. Plan ahead for lump-sum tax bills if forgiveness is coming.

Why This Matters

The Big Beautiful Bill is about more than just student loans. It’s about:

• Your monthly budget
• Your future tax bill
• Your eligibility for forgiveness

And for millions of borrowers, it’s coming fast.

Bountisphere Can Help You Navigate It All

Bountisphere is built for moments like this. When rules change and you’re not sure what to do next, our Money Coach gives you:

• Personalized financial insights
• Alerts about upcoming tax liabilities
• Supportive, non-judgmental guidance

And we do it without judgment. Because figuring out your money shouldn't feel like passing a test.

Sign up for your free trial of Bountisphere and start building a future you're proud of — one payment at a time.