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.
Over the past five years, student loan repayment has gone through a rollercoaster of changes:
Under the new law, borrowers will choose between two repayment options:
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.
One of the biggest shakeups is to PSLF. The new rules:
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.
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.
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.
Even if federal tax exemption still applies (through 2025), many states already tax forgiven debt. Here are some examples:
| State | Forgiveness Tax Status |
|---|---|
| California | Not taxed |
| New York | Not taxed |
| Texas | No state income tax |
| Indiana | Taxed |
| Mississippi | Taxed |
| North Carolina | Taxed |
| Minnesota | Likely taxed |
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.
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.
Under RAP, your household income determines your payment. That means:
This makes tax strategy and planning even more important — something most borrowers aren’t prepared for.
The Big Beautiful Bill is about more than just student loans. It’s about:
And for millions of borrowers, it’s coming fast.
Bountisphere is built for moments like this. When rules change and you’re not sure what to do next, our Money Coach gives you:
And we do it without judgment. Because figuring out your money shouldn't feel like passing a test.
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