Student Loans Explained: A Complete Glossary for Borrowers (2026 Guide)

Why Student Loans Feel So Confusing

Discussing student loans is hard. In my latest Great Day Louisiana TV segment, the host, Malik Mingo, hit me with a “now he’s throwing all the acronyms at us.” I’m not going to lie. It hurt. That’s not who we want to be as a financial planning firm. Our mission is to eliminate the jargon and financial alphabet soup that the suit and tie, corner-office, picture of spouse on a jet ski gatekeepers have historically thrived on, keeping confusion high and their fees higher. We just want to speak to our audience plainly and relatably. 

When it comes to student loans, that might just be impossible. Federal student loans were created in 1958 by the Eisenhower administration, and almost every administration since has put its hands on them. Drastic changes have occurred every 4 to 8 years, shaping the modern-day economics of borrowing, seeking forgiveness, and/or repaying. The terms you understood to be true (if you understood them at all) will be different from the ones you’ll need to know when you go to pay them back. And then it will change again, and again, and again. Exhausting! Honestly, it’s like driving somewhere in New Orleans. Just random construction, potholes, street closures, parades, second lines, stray dogs, school zones, and train crossings have you rerouting like the frantic start of every zombie apocalypse movie.

It’s an unfair system for consumers. Put aside what you think about the cost of education, the “dignity” of repayment, or taxpayer-subsidized forgiveness. At the very least, borrowers deserve to understand their options, make informed decisions, avoid being forced to change every few years, and use what was already promised to them when the loans were disbursed. 

Instead, borrowers face a system where changes are politically charged and convoluted. The Department of Education and loan servicers themselves can barely keep up and point you in the right direction. Repeatedly, the technology on their websites, which you rely on for accurate information, proves to be false. It leaves borrowers completely scarred. They never want to look at their loans again. Then, there are the interest rates that the government is charging over the life of these loans. As of this publication date, current loan rates for the 2025-26 school year are 6.39% for undergraduates, 7.94% for graduate students, and 8.94% for PLUS loans. These are predatory rates. Far from an “investment” in our future. 

So please know you are not alone. Nothing frustrates me more than hearing a friend explain their student loan situation and realizing they’re losing money. The fix is simple, yet they remain stuck in inaction. I conduct seminars for perhaps the smartest people in the city – the doctors at Ochsner (no offense, friends at the bar!). It’s the same situation. So I’m here to try to untangle this once and for all. A glossary to help readers better understand their loans and repayment options.

Financial Aid Terms

FAFSA: The Free Application for Federal Student Aid form is completed annually and determines your eligibility for federal aid, such as grants and loans. The FAFSA opens regularly on October 1st of the year before the award year. The federal deadline for each award year is June 30th (end of the award year). State deadlines tend to be earlier. 

Grants: Financial aid provided as a gift that does not need to be repaid. Free money! Grants usually come from limited funds, meaning not everyone who qualifies will receive one. They are often distributed on a first-come, first-serve basis or require very specific eligibility requirements. 

Student Loans: Financial aid in the form of loans involves borrowing money that typically accrues interest and must be repaid. These loans are accessible to undergraduates, graduate students, and parents of dependent undergraduates. The loan terms are set by the lender, whether federal or private. Federal loans are standardized, meaning the options and eligibility are generally uniform for all applicants. Private loans are subject to underwriting and lender-specific provisions.

Types of Student Loans

Private Loans: Issued by a bank, credit union, or state-affiliated organization – not the federal government. Repayment schedules and interest rates are determined by the lender at origination. There is no forgiveness, and discharge at death is up to the lender. Once loans are private, they can not be refinanced or consolidated into a federal loan. Private loans are between you and that specific lender, and you are no longer eligible for any relief or programs provided by the federal government on that borrowed amount. 

Federal Loans: Direct loans offered by the U.S. Department of Education. Types of Federal Loans:

  • Direct Subsidized: Available to undergraduate students with financial need, which is determined after completion of your FAFSA. The government pays your interest while you are in school and other qualifying periods, most notably the 6-month grade period. 

  • Direct Unsubsidized: Available to undergraduate, graduate, and professional students. Financial need not necessary. Interest begins accruing immediately and continues to accrue during repayment grace periods. 

  • Direct Consolidation Loans: Combining multiple federal education loans into a single loan. Although this is one loan, it will still be separated into subsidized and unsubsidized amounts. The interest rate is a weighted average of the underlying loans being consolidated. 

  • Parent PLUS: Available to parents of dependent undergraduate students. Interest begins accruing immediately. 

  • Grad PLUS: Previously available to graduate/professional students. Interest accrues immediately. Grad PLUS loans are being eliminated for new borrowers on July 1, 2026, although students can still borrow unsubsidized loans for graduate and professional school under new borrowing limits as explained below. There is an interim exception period for eligible existing Grad PLUS borrowers to continue. 

Previous loans offered include Stafford, Perkins, and FFEL. Which repayment plan these loans are eligible for (if not consolidated) depends on the loan itself. 

Student Loan Limits (Effective July 1, 2026)

Does not cover limits for students whose parent cannot secure a Parent PLUS loan.

Annual Loan Limit: Maximum amount per loan each academic year.

  • Dependent Undergraduate:
    • First Year: $5,500
    • Second Year: $6,500
    • Third Year+: $7,500
  • Graduate Students: $20,500
  • Professional Students: $20,500
  • Parent PLUS: $20,000 per student

Aggregate Loan Limit: Maximum cumulative amount of combined direct subsidized and unsubsidized unpaid principal balance that you are allowed to have outstanding at any point in time.

  • Dependent Undergraduate: $31,000
  • Graduate Students: $100,000
  • Professional Students: $200,000 (includes loans received as a graduate student)
  • Parent PLUS: $65,000 per student

Lifetime Maximum Loan Limit: Total amount a borrower can ever receive in loans, regardless of amounts repaid and grade level.

  • Combined Dependent Undergraduate, Graduate, Professional Loans: $257,500
  • Parent PLUS: $65,000 per student

Definition of “professional degree” per the Department of Education website:

Key Student Loan Terms

Award Year: A 12-month period running from July 1 through June 30th is used to determine annual loan limits, financial aid, and disbursement. Your FAFSA from each year is used to determine your financial aid for the following award year. 

  • Example: The 2026-27 FAFSA became available on September 24, 2025. The application deadline is June 30, 2027, but in reality, you need to apply much sooner. This FAFSA determines your eligibility for the 2026-27 award year (fall 2026 and spring 2027 semesters). 

Interest Rate: The rate at which interest accrues on the unpaid principal of the loan. For federal student loans, the interest rate is fixed at the time of disbursement and will not change over the life of the loan unless the loan is consolidated. Interest accrues daily.

Accruing Interest: Interest accrues based on the principal balance of the loan. While unpaid interest can be forgiven (more on that later), it is not added to the principal of loan. It is a separate line item that needs to be repaid or possibly forgiven. If you have a $20,000 loan at a 7% interest rate, about $4 in interest would accrue daily ($125 per month). However, if your balance grew to $23,000 because you were in forbearance, deferment, or in a grace period, interest would still accrue only on the original $20,000. 

Subsidized Interest: Interest that does not accrue and is paid by the federal government. There are two (2) ways to benefit from this. You have a direct subsidized loan and are either enrolled in school at least half-time, in a 6-month grace period after graduating or leaving school, or in an eligible deferment period. Or, you are on an eligible repayment plan. As of this publication date, the only repayment plan that allows interest to be subsidized is the Repayment Assistance Plan (RAP), which is set to start on July 1, 2026. 

Interest Capitalization: Unlike interest that accrues or is subsidized, when your interest capitalizes, it is added to your loan’s unpaid principal balance (which is bad). Your interest is then recalculated based on that higher amount. In other words, you are paying interest on interest. Interest capitalizes on unsubsidized loans after deferments or upon leaving the Income-Based Repayment (IBR) repayment plan. 

Repayment Cap: Under the Income-Driven Repayment plans of PAYE and IBR, your monthly repayment amounts are capped at the 10-year standard repayment plan amount. This is generally helpful when you are seeking forgiveness and, later in your loan term, your income exceeds your total balance.

Loan Statuses

Forbearance: An approved pause allowing you to temporarily stop making payments without penalty. Although interest can still accrue during this time. Types of forbearance are general (financial hardship), mandatory (service-related), or administrative (local/national emergencies). 

Grace Period: The amount of time you are provided before having to repay your student loans due to leaving school or dropping below half-time enrollment. Eligible loans typically carry a 6-month period. Depending on the loan type, interest may still accrue. 

Deferment: A wide range of approved reasons may qualify you to temporarily pause payments on your student loans. Depending on the type of deferment, interest may still accrue during the deferment period and capitalize at the end of that period if not paid. 

Delinquent: Nonpayment of student loans when not in an eligible deferment or forbearance. After 90 days, you may receive a ding on your credit score. After 270 days, you’re considered to be in default. 

Default: After 270+ days of delinquency, you are considered in default on your student loans. This is not good, and there is a scary list of possible consequences and penalties that the loan servicers or the government can use to negatively impact your finances or to collect the debt owed. Once again, this does not apply to borrowers in approved periods of forbearance or deferment. 

Repayment: Actively making your monthly required payments.

Student Loan Forgiveness Programs

There are more, but I will cover only the most common ones here. 

Public Service Loan Forgiveness (PSLF): Only available for employees working in the government or non-profit sector. If you satisfy the four (4) key components listed below, you will have the balance on your student loans forgiven. PSLF is a common path for occupations such as teachers, nurses, physicians, public attorneys, nonprofit employees, and government employees. Generally speaking, pursuing forgiveness makes sense if you are employed by a qualified employer and have a high student debt-to-income ratio. As in, you owe more than you earn annually. The four (4) key components:

  1. Have Direct Federal Loans

  2. Make 120 Qualifying Payments (do not need to be consecutive)

  3. Work for a Qualifying Employer (including when you submit your final PSLF form)

  4. Made Payments On Any Income-Driven Repayment Plan or the 10-Year Standard Plan (switching IDR plans does not reset your repayment progress)

Income-Driven Repayment Forgiveness: Accessible to all federal borrowers, no matter their occupation, who have consistently made payments under an income-driven repayment plan. One notable exception is Parent PLUS borrowers who have not consolidated their loans before July 1, 2026 and selected an IDR payment plan by July 1, 2028. IDR forgiveness may make sense if your loan balance is excessively high or if you expect to have a very low income and a correspondingly low repayment amount for the duration of your loan. Each Income-Driven Repayment Plan has its own repayment period toward forgiveness, and the remaining forgiven balance is TAXABLE as income for the tax year.

  • New IBR Plan: 20 Years

  • Old IBR Plan: 25 Years

  • PAYE Plan: 20 Years

  • ICR Plan: 25 Years

  • RAP Plan: 30 Years

Student Loan Repayment Options

When making monthly student loan payments, you are either on a “fixed payment” plan or an “income-driven repayment plan.” 

Fixed Payment Repayment Plans: Monthly repayment amount is determined by how much you owe, the interest rate, and the loan maturity. Payments are calculated to ensure your loan is paid in full. Unless on a specific 10-Year Standard Repayment plan, you do not accrue credits toward forgiveness. 

Fixed Payment Repayment Plans (For Existing Borrowers BEFORE July 1, 2026)

  • Standard Repayment Plan: Fixed payments for 10 years for individual loans or 10 to 30 years for Consolidation Loans based on balance.
  • Graduated Repayment Plan: Payments increase gradually every two years on the same maturity schedule as the Standard Repayment Plan. This allows for lower payments early after graduating from college, with higher payments later. Sounds great in theory, but this is typically a costly option. 
  • Extended Repayment Plan: If eligible, it extends your standard or graduated repayment plan beyond 10 years and up to 25 years for non-consolidated loans. 

Fixed Payment Repayment Plans (For New Borrowers ON/AFTER July 1, 2026)

Definition of “New Borrower”: If you have a single loan, including a consolidation loan, that is disbursed on or after July 1, 2026, you’ll lose eligibility for any repayment options available to existing borrowers prior to that same date on ALL YOUR LOANS. 

  • Tiered Standard Repayment Plan: Fixed and equal payments over a 10 – 25 year period based on outstanding principal balance. Payments do not count toward loan forgiveness. 
    • Less than $25,000: 10 Years
    • $25,000 – $50,000: 15 Years
    • $50,000 – $100,000: 20 Years
    • $100,000+: 25 Years

Income-Driven Repayment Plans (IDR): Monthly repayment amount is determined by household income and size. IDR plans are eligible for certain types of forgiveness. Whether you would benefit from pursuing forgiveness depends greatly on your specific situation. As previously mentioned, if you qualify for Public Service Loan Forgiveness (PSLF), all IDR plans require 120 qualified payments (10 Years). 

Income-Driven Repayment Plans (For Existing Borrowers BEFORE July 1, 2026)

For simplicity, I am not including the Income-Contingent Repayment Plan (ICR) or the Pay As You Earn Plan (PAYE), since these options will be phased out completely for all borrowers by July 1, 2028. There’s only one obscure reason you might hang on to the ICR plan, which is that you’re a Parent PLUS borrower who never consolidated by the July 1, 2026 deadline and are therefore ineligible for other IDR plans. As for PAYE, there’s a chance you’d benefit from being on this plan if you’re only eligible for the Old IBR Plan (borrowed before July 1, 2014). 

  • Old IBR Plan (2009): 
    • Eligibility: 
      • First Borrowed Before July 1, 2014 
      • No New Loans After June 30, 2026
    • Repayment Amount: 15% of Discretionary Income
    • IDR Repayment Period for Forgiveness: 25 Years
    • Subsidized Interest: No
    • Repayment Cap: Yes
  • New IBR Plan (2014): 
    • Eligibility: 
      • First Borrowed After July 1, 2014 
      • No New Loans After June 30, 2026
    • Repayment Amount: 10% of Discretionary Income
    • IDR Repayment Period for Forgiveness: 20 Years
    • Subsidized Interest: No
    • Repayment Cap: Yes
  • RAP Plan (July 1, 2026): 
    • Eligibility: Federal Loans (unless they include Parent PLUS)
    • Timeline: Starts July 1, 2026
    • Repayment Amount: Tiered % based on AGI (Adjusted Gross Income) and the following income brackets:
      • < $10,000: $10/month
      • $10,001 to $20,000: 1% of AGI
      • $20,001 to $30,000: 2% of AGI
      • $30,001 to $40,000: 3% of AGI
      • $40,001 to $50,000: 4% of AGI
      • $50,001 to $60,000: 5% of AGI
      • $60,001 to $70,000: 6% of AGI
      • $70,001 to $80,000: 7% of AGI
      • $80,001 to $90,000: 8% of AGI
      • $90,001 to $100,000: 9% of AGI
      • $100,001+: 10% of AGI
    • IDR Repayment Period for Forgiveness: 30 Years
    • Subsidized Interest: Yes
    • Repayment Cap: No
    • Miscellaneous: $50 reduction for each monthly payment per dependent

One of the key distinctions between IBR and RAP is how the repayment amount is calculated. 

IBR uses a percentage (%) of “Discretionary Income” and RAP uses a percentage of your actual “Adjusted Gross Income”. Discretionary Income is defined as your Adjusted Gross Income Minus the Federal Poverty Level Multiplied by 150%. Here are some monthly repayment examples, assuming one borrower per household and no repayment caps:

Household 1: Individual with $80,000 of Adjusted Gross Income (AGI)

  • New IBR Plan: ((($80,000 – ($15,960 x 150%)) * 10%) / 12 → $467/mo
  • Old IBR Plan: ((($80,000 – ($15,960 x 150%)) * 15%) / 12 → $701/mo
  • RAP Plan: ($80,000 * 7%) / 12 → $467/mo

Household 2: Married + 2 Dependents with $400,000 of Adjusted Gross Income (AGI)

  • New IBR Plan: ((($400,000 – ($33,000 x 150%)) * 10%) / 12 → $2,921/mo
  • Old IBR Plan: ((($400,000 – ($33,000 x 150%)) * 15%) / 12 → $4,381/mo
  • RAP Plan: (($400,000 * 10%) / 12) – $100 → $3,233/mo

Final Thoughts

Congratulations, you’ve made it to the end! Bookmark this for future updates, and we’ll continue to relink any updated versions. Ultimately, the best student loan advice we could ever give anyone is to get a clear plan from an expert if you don’t have one! It might be the best money you’ve ever spent, not just for the money you save, but for the peace of mind it brings.

Frequently Asked Questions About Student Loan Terms

Q1: What is student loan interest capitalization?
A1: Interest capitalization happens when unpaid interest is added to your loan’s principal balance. Once capitalized, future interest accrues on the higher balance, increasing the total cost of repayment over time.
Q2: What is the RAP student loan repayment plan?
A2: The Repayment Assistance Plan (RAP) is a new federal income-driven repayment plan scheduled to begin July 1, 2026. Payments are based on a percentage of adjusted gross income (AGI), and unpaid interest may be subsidized by the federal government.
Q3: How does Public Service Loan Forgiveness (PSLF) work?
A3: PSLF forgives remaining federal student loan balances after 120 qualifying monthly payments while working full-time for an eligible government or nonprofit employer under a qualifying repayment plan.
Q4: Will federal student loan repayment plans change after July 1, 2026?
A4: Yes. Borrowers receiving new federal loans on or after July 1, 2026 may lose access to some existing repayment plans and become subject to the newer RAP and Tiered Standard repayment structures.
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Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

When To Refinance Your Mortgage

Mortgage Rate Trends

It’s no secret that homebuyers from 2023, 2024, and 2025 may be eager to refinance. With mortgage rates dropping in 2025 and expected to fall even further, you might be wondering if now is the right time. Yesterday, on September 17th, 2025, Jerome Powell announced the first 0.25% rate cut of 2025, and the Fed as a whole offered lukewarm guidance about additional cuts this year. 

Glass half full: Right now, mortgage rates are near their lowest levels in the past three years and nearly match the lows from 1970 to 2001. 

Glass half empty: They are still well above the sub-3% rates of 2020 and 2021.

Why Is Everyone Focused on the Federal Funds Rate?

One common misconception about mortgage rates is that they are directly linked to the Federal Funds Rate, which is set by the Federal Reserve. Want to learn more about the federal funds rate? Check out this explainer from Investopedia. The essence of it is that the Fed uses the federal funds rate to influence bank lending, which in turn affects the money supply available to consumers. When *cheap* money is accessible, consumers tend to invest more aggressively and spend more. If left unchecked, this can result in inflation, which increases the costs of goods and services and may even lead to financial bubbles like the one seen during the 2008 financial crisis. Following the economic stimulus triggered by Covid-19, the Fed sensed the economy was *overheating* due to the 0% federal funds rate and took steps to ease us into a “soft landing” a.k.a. a sustainable reality. A prime example of our economy starting to overheat was the surge in home values, as well as the GameStop trading frenzy, which we wrote about in an earlier blog.

What Mortgage Rates Actually Track

What’s important to know is that the 30-year mortgage rate does not move in lockstep with the federal funds rate. Just because the Chair of the Federal Reserve, Jerome Powell, announces a 0.25% rate decrease doesn’t mean the 30-year mortgage will drop by 0.25%. It’s important to recognize that determining the mortgage rate is not an exact science. There are variables, many of them. And certainly, the federal funds rate has a role. 

Borrowers should consider the 10-Year Treasury as a gauge for where 30-Year Mortgage rates are headed. As shown below, mortgage rates tend to be 2 to 2.5 percentage points higher than the 10-Year Treasury yields. This then leads us to the question: if mortgage rates follow 10-Year Treasury rates, then how are 10-Year Treasury rates determined?

Enter the 10-Year Treasury Yield

If we think of the federal funds rate as an educated guess on how to best drive the economy forward and a proactive measure, then the 10-Year Treasury yield represents the market’s response and reaction to that direction. Scorsese makes the movie, and the audience must decide what to make of it. And we’ll run with the movie analogy even further.

Director = Fed Chair

Professional Critics = Fed Board of Governors

Supply and Demand = Theatrical vs. streaming release

Market Sentiment = Pre-release buzz

Inflation Expectations = Cost to see today vs. tomorrow

Term Premium = Can you afford to have the ending ruined for you? 

Geopolitical Events = Actor nutjob says something they shouldn’t have

Wrap all of these together, and you have investor/consumer sentiment for 10-Year Treasury rates and renting/owning a movie!

So, Is Now The Time to Refinance?

Refinancing is decided on a case-by-case basis, depending on your current rate, refinance terms, and how long you plan to stay in the home. However, we do recommend a general rule of thumb. Are you lowering your rate by 0.50% and is your break-even point on upfront costs within 18 months or less? 

The Break-Even Point

Typically, refinancing your mortgage comes with an upfront cost. And while that’s not always true, lenders typically want something in return when it comes to doing a lot of paperwork to save you money. Therefore, you have to know what your one-time cost is to lower the interest rate for the life of your mortgage. For example, if it costs you $2,000 to refinance your mortgage and refinancing saves you $200 a month on your principal and interest, that results in a 10-month breakeven point. As long as you plan to stay in the home long enough to realize those monthly savings, it’s a sweet deal. And this is a good reminder that ALL you’re looking at is your principal and interest, not your escrow, which may include insurance and taxes. Your mortgage rate isn’t affected by how much you owe in property taxes or homeowners’ insurance, so it’s best to keep the comparison as clear as possible. 

Let’s also imagine you refinance, and before you hit your break-even point, rates drop again, giving you another chance to refinance. What do you do? Another part of staying in the home long enough to see those monthly savings is considering whether you reasonably expect to be able to refinance again before reaching the break-even point. And this is where following Federal Reserve guidance can be helpful. As discussed, it’s not the primary driver of mortgage rates, but it is a part of the overall picture. So if they are signaling several subsequent rate cuts, it likely makes sense to wait until those are completed before taking action. Ultimately, if unexpected rate cuts occur, you’ll fall back on the same rule of thumb and treat the original refinance cost as a sunk cost. Saving money in the long run remains the goal, even if you misjudge the timing slightly. 

Exercise Caution When Refinancing

Like most things, there are certain things to look out for when it comes to refinancing. 

Upfront Costs

Don’t be fooled: just because there are no upfront costs on a refinance, it doesn’t mean there are no costs at all. When you roll costs into the loan, your monthly payments will go up. That’s why it’s crucial to not only know your mortgage rate, but also your Annual Percentage Rate (APR), which includes the total cost of the loan beyond just the borrowed amount. 

Existing vs. New Lender

Even if your current lender is eager to work with you on a refinance, don’t assume those are the best terms you’ll get. While they are certainly a natural first step in inquiring about refinancing, remember that mortgages are sold all the time. You should compare their offer with what a new lender can offer. I suggest checking with both a local and a national company. There are also rate comparison sites online if you don’t mind receiving spam emails and calls. 

Amortization Schedule

Let’s say you’re a few years into a 30-year mortgage and refinance to another 30-year loan. By definition, you’ll be making payments for over 30 years. But if you’re refinancing to a lower interest rate, it doesn’t matter how many extra years you add to the loan. You’ll still come out ahead over the life of the loan since you’re just lowering your existing balance’s interest rate, which results in less interest paid. Understand that you don’t necessarily have to refinance to another 30-year loan, though. You might try to match your remaining payments to 15, 20, or 25 years, whichever is closest to your original number of payments left. Some lenders will even match the exact number of years you have left on your existing loan. The other option is to refinance into a 30-year loan but keep making your same monthly payment, which effectively prepays your loan and saves you interest over the life of the loan.

When a Recast Might Be Beneficial

There’s a lesser-known approach to traditional refinancing called recasting. It’s for borrowers who can make a lump-sum payment of 10% or more of their loan balance. Although your interest rate won’t change, your lender might let you make a big payment toward your balance and reamortize the loan, resulting in a lower monthly payment going forward. As a result, you’ll keep your current payment schedule with a lower monthly payment rather than shortening the term of your loan. So this is a way of saving today instead of saving tomorrow.

Great Day Louisiana: 2025 Mortgage Trends (originally aired on September 17th, 2025)

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Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!

Sign up for our newsletter (at the bottom of this page) to stay up to speed on our Upbeat Insight.

Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

OBBBA Student Loan Updates

Creating a Student Loan Repayment Plan

Let me start by saying that the goal of this article is to provide an objective summary of the changes in the student loan world for existing borrowers, helping people make informed decisions moving forward. The purpose isn’t to criticize or pass judgment on the ongoing legislative issues or poor execution. We’ll briefly mention some changes affecting new borrowers but reserve a more detailed explanation for later. If you’re a parent planning to borrow for your child or a student preparing for graduate or professional school, you’ll face the biggest challenges from the upcoming changes if taking out loans after July 1, 2026. Borrowing after July 1, 2026, can also affect how you repay your existing loans. 

Currently, 7.7 million people are on SAVE forbearance. Most people feel frustrated, confused, and uncertain about how they will repay their loans. They are exhausted from being the ball in an endless game of political ping pong. If you’re one of those people, this article is for you.

Student Loan Repayment Options

Need a refresher on student loan repayment options? Here’s a bird’s-eye view from the Department of Education: https://studentaid.gov/manage-loans/repayment/plans

Generally speaking, borrowers have two options to pay back their student loans:

  • Fixed payment: Loans structured for borrowers to pay off their balances in full within a specified time period

  • Income-Driven Repayment (IDR): Monthly payments are calculated using your household income and size. IDR is primarily designed for borrowers seeking some type of student loan forgiveness.  

So, why wouldn’t everyone choose to make payments under an income-driven repayment plan and aim for forgiveness? You have a high income. When your student loan repayment is based on your income, it might cause you to pay off your loans too quickly to qualify for forgiveness or raise the payment above what you’re comfortable paying. Or the opposite, you might actually want to pay off your loans quickly but prefer not to deal with the hassle of recertifying income annually. Perhaps you’ll refinance to lower your interest rate and pay off your loans as fast as possible. 

Income-Driven Repayment Plans

As mentioned, on an Income-Driven Repayment plan, your total repayment amount is calculated based on your income. The balance and interest of your loan only apply to plans that have “payment caps.” A payment cap puts a ceiling on your total monthly payment, which is equal to what you would pay under the 10-Year Standard Repayment Plan, a fixed repayment plan. Payment caps are applicable to two IDR plans, PAYE and IBR. Payment caps are a valuable feature for borrowers with rising incomes who may still qualify for forgiveness.

There are currently six(ish) IDR Plans: PAYE, Old IBR, New IBR, ICR, SAVE, RAP.

  1. PAYE: Eligible for existing borrowers with loans originated after October 1, 2007 AND a Direct Loan after October 1, 2011 until June 30, 2026

  2. Old IBR (2009): Eligible for existing borrowers with loans originated before July 1, 2014

  3. New IBR (2014): Eligible for existing borrowers with loans originated after July 1, 2014 until June 30th, 2026

  4. ICR: Eligible for existing borrowers until July 1, 2028

  5. SAVE: No longer eligible for enrollment

  6. RAP: Created by the One Big Beautiful Bill Act (OBBBA), but not yet available for enrollment

IBR is technically “one plan,’ but we are treating it as two separate plans because changes made in 2014 benefit eligible borrowers by lowering their payments. Since New IBR is notably better than Old IBR, you need to know which plan applies to you.

Common Paths Toward Student Loan Forgiveness

Public Service Loan Forgiveness (PSLF)

The primary goal of using an income-driven repayment plan is to reduce your student loan payments (especially for those with high balances and low incomes) and eventually qualify for forgiveness. Even professionals with high incomes can benefit from forgiveness if their loan balance is substantial and they experience a period with a temporarily low income, such as during residency for physicians. 

Although some occupation-specific forgiveness programs exist, the most well-known and widely discussed is the Public Service Loan Forgiveness (PSLF) program, which covers those who work full-time for a not-for-profit or government organization. Popular occupations include healthcare workers, military personnel, law enforcement officers, first responders, teachers, local and federal government employees, social workers, and nonprofit workers. 

Unsure if you qualify for PSLF? There are 4 Key Components:

  1. Have Direct Federal Loans

  2. Make 120 Payments

  3. Work for a Qualifying Employer (including when you submit your final PSLF form)

  4. Make Payments On An Income-Driven Repayment Plan (although the 10-Year Standard Plan also counts toward this)

IDR Forgiveness

Workers in the private sector can also qualify for forgiveness under an IDR plan, but it will take longer than the time available to public servants under PSLF. If you do not qualify for PSLF, you’ll have to repay your loans for 20, 25, or 30 years to get forgiveness, depending on which IDR plan you’re enrolled in. 

  • PAYE: 20 Years

  • New IBR: 20 Years

  • Old IBR: 25 Years

  • ICR: 25 Years

  • RAP: 30 Years

Another key difference is that PSLF forgiveness is not taxable, whereas IDR forgiveness is. This is often referred to as a tax bomb, and it will take effect again starting January 1, 2026. The forgiven balance of your student loans will be counted as income in the year it is forgiven. To clarify, this does not apply to public servants repaying their loans through PSLF, which remains protected as tax-free under federal law.

Current OBBBA Updates for Existing Borrowers

As of July 29th, 2025, many of the “updates” expected to be rolled out by OBBBA have not yet been implemented. Here are some of the changes that are effective immediately or, at the very least, actionable. 

Existing Parent PLUS Loans Now Qualify for IBR

Previously, Parent PLUS borrowers had access only to ICR, the least favorable IDR plan with the highest monthly payments, unless they used a strategy known as the double consolidation loophole. Now, as long as Parent PLUS borrowers consolidate before July 1, 2026, and enroll in an IDR plan before July 1, 2028, they will qualify for plans beyond ICR, which is the least favorable IDR plan. This is good news for parents who have borrowed on behalf of their kids.

SAVE Plan Forbearance

If you are already enrolled in the SAVE plan, you will remain in forbearance until the sooner of a court ruling or July 1, 2028. This should not be confused with the announcement by the Department of Education stating interest will start accruing on August 1, 2025. Interest beginning to accrue again doesn’t mean you have to start making payments. You are protected from defaulting on your loans under SAVE through forbearance. Later, we’ll discuss reasons you may voluntarily move off SAVE, but for right now, you are not required to voluntarily switch or pay.

Future OBBBA Updates for Existing Borrowers

Most of the legislative changes in the OBBBA have not yet taken effect or are scheduled for future dates. Here are a few of the major changes existing borrowers can expect to see in the coming years. 

Some IDR Plans (PAYE, ICR, SAVE) Will Be Eliminated

The following IDR plans will be phased out and eliminated. Existing borrowers will not be grandfathered into these plans and will not be allowed to make payments on them beyond July 1, 2028. It is unclear how the Department of Education will handle the transition, but all borrowers in the plans listed below will be asked to switch before July 1, 2028. 

  • PAYE: July 1, 2028

  • ICR: July 1, 2028

  • SAVE (formerly REPAYE): Sooner of a court ruling or July 1, 2028

Please note that if you were paying under REPAYE, you were automatically moved to SAVE in 2023.

A New IDR Plan (RAP) Will Be Created

A new IDR plan, called the Repayment Assistance Plan (RAP), will be introduced by July 1, 2026. This will leave existing borrowers (those with no loans originated after July 1, 2026) with the following IDR plan options beyond July 1, 2028. 

  • Old IBR (Borrowers Before July 2014)

  • New IBR (Borrowers After July 2014)

  • RAP

Partial Financial Hardship Will Be Removed for PAYE & IBR

Previously, you could only switch to the IBR plans if you had a partial financial hardship, which was defined by your income-driven repayment being less than your 10-year Standard Repayment amount. Lawmakers recognized that this would be problematic for many borrowers who were making payments on IDR plans that will ultimately be eliminated. Therefore, to expand eligibility for PAYE and IBR, they are removing the partial financial hardship requirement for enrollment. Unfortunately, there is no specific timeline for when this change will take effect and be implemented by the loan servicers. So, PAYE/IBR might show as ineligible on your studentaid.gov portal for now, even though you’re eligible to enroll. Frustrating!

Department of Education Confirms “Buyback” Will Continue for PSLF-eligible Borrowers

Borrowers who have 120 months of eligible employment can buy back periods of deferment or forbearance, provided this brings their total to 120 qualifying payments. The Department of Education announced that in the future, borrowers may buy back previous months even if they do not have 120 months of eligible employment. While it is not guaranteed in the future, as of now, you are eligible to buy back every month you’re in SAVE forbearance, assuming you work for a qualified employer. You still cannot buy back months spent not on an IDR plan or working for a nonqualified employer. 

Changes for Borrowers Taking Out Loans on or After July 1, 2026

The biggest impact of the OBBBA is for borrowers who need to continue borrowing on or after July 1, 2026, as repayment options will become very limited. New borrowers on or after July 1, 2026, and those who consolidate after that date will only have access to two plans. 

  1. An Updated Standard Repayment Plan: the repayment term depends on your loan balance.

  2. The Repayment Assistance Plan (RAP): the only IDR plan option

The situation is even worse for new Parent Plus borrowers; they will only have access to the Standard Repayment Plan, and these loans will no longer qualify for forgiveness.

Borrowers taking out loans on or after July 1, 2026, will face new loan limits for graduate and professional schools as well as for Parent PLUS loans. 

There are changes in procedures for exiting default on loans, qualifying for economic hardship, and entering forbearance, none of which are favorable compared to the current rules.

Is the New IDR Plan (RAP) Any Good?

The RAP Plan is the Republican response to President Biden’s SAVE Plan. While the SAVE Plan was very generous for many borrowers, the RAP Plan is not as kind. The SAVE plan effectively lowered payments for many borrowers compared to other IDR plans. RAP, unfortunately, does mostly the opposite. However, there are small pockets of borrowers who will benefit from a lower payment under RAP compared to New IBR, specifically those with balances between $30,000 and $80,000. 

In line with Income-Driven Repayment Plans, your payment is based on income, although it’s calculated differently than previous IDR plans. Instead of explaining how the income is calculated, I will show you an illustration of how the monthly payments compare across plans. Here are some example monthly payment calculations for RAP vs. Old IBR vs. New IBR. 

Illustration notes: New IBR and PAYE payments are the same. Additionally, this doesn’t consider the monthly payment cap borrowers qualify for under IBR/PAYE, where your payment is limited to the 10-year standard repayment amount. Therefore, the IBR payments shown may actually be lower in your personal situation depending on your loan balance and interest rate. 

RAP Plan Pros

  1. RAP upholds a popular student loan strategy where borrowers can file their taxes separately and pay based on their individual income instead of the household’s income. This is especially useful when the borrowing spouse earns less or is currently unemployed. 

  2. Similar to the SAVE plan, if your monthly payment does not cover the interest, the government will waive it and pick up the tab. It will not be added to the loan. 

  3. In addition to waiving interest, the government will contribute up to $50 toward your loan so your principal actually goes down. 

RAP Plan Cons

  1. Lowest-income borrowers will still need to pay at least $10 per month. There is no option to have a $0 student loan payment. 

  2. If you don’t qualify for PSLF or other forgiveness programs, you need to make 30 years of payments to get IDR forgiveness with RAP. That’s 10 years longer than what is required by New IBR & PAYE.

  3. Other IDR plans determine the amount you can pay based on your “discretionary income,” which is calculated by subtracting a percentage of the Federal Poverty Level (FPL) for your household size. The FPL increases each year to account for inflation, allowing you to exclude a larger amount of income from your household income when calculating your monthly repayment. The RAP plan bucks this trend, so inflation will not help reduce your payment. 

  4. RAP will cost households where both partners have student loan debt. Unlike other IDR plans, there is no prorata calculation used to determine each spouse’s student loan payment based on household income. Instead, as we understand it now, RAP requires each borrower to pay the full calculated amount for their individual loans and does not lower that payment unless you file your taxes married filing separately to exclude your partner’s income.

  5. There is no payment cap relative to the 10-Year Standard Repayment amount.

If I’m In The SAVE Forbearance, What’s My Move?

Giving specific student loan advice is a tall order, so that’s not the goal for the rest of this blog. Ultimately, many variables affect your situation: the type of loans, eligible plans, PSLF or IDR credits, your income, your spouse’s income, projected career path, and household size. And then there’s the total uncertainty of future policy changes. HOWEVER, here’s what I would generally consider in some common scenarios. 

When Staying in SAVE Might Make Sense:

You have made or will make 120 payments, including the SAVE forbearance period, and are currently awaiting the Department of Education’s review of your PSLF Reconsideration request for buyback. 

You have higher-interest loans that you’re working on paying back, like credit card debt. Your money is probably better spent paying down higher-interest loans. 

You are not a public servant, and it’s not clear whether IDR forgiveness or paying off your loans completely is the better financial choice. Additionally, until the partial financial hardship requirement for PAYE or IBR is removed, you’re stuck with the least favorable plan, ICR, as your only option. You might just let the interest on your loans accrue until that partial hardship is removed. 

You expect your income to decrease in the future, making your payments toward forgiveness cheaper than they are now. 

You don’t want to remove yourself voluntarily from SAVE until it’s official that interest will truly accrue.

You already filed your 2024 taxes as married filing jointly, but ideally, you might benefit from filing married filing separately and using only your income to determine the monthly payment. 

When Switching from SAVE to PAYE Might Make Sense:

Your income is similar to your last recertification, and you’re ready to start making payments again to earn credit toward IDR forgiveness or PSLF. 

Once the partial hardship is removed, you can switch and still be limited to the 10-Year Standard Repayment, which allows you to balance the option of continuing earning forgiveness credits with paying back your loans in full.

You took out loans before July 1, 2014, and now only qualify for Old IBR. PAYE is a more affordable plan in any situation compared to the Old IBR. Yes, you’ll need to leave PAYE by July 1, 2028, but at least you’ll get a few years of lower payments before that. 

You’re far from forgiveness and have a career path with increasing income. You might want to start earning guaranteed PSLF/IDR credits now at a lower amount, avoiding the need to buy back later. It’s also possible that the buyback amount will be the same as your PAYE payment today. 

When Switching From SAVE to Old IBR Might Make Sense:

You only need to make a few more payments to reach 120 credits and want to avoid waiting for PSLF buyback, or you need to act quickly on PSLF because you’re leaving a qualifying employer. Remember, you must be actively employed at a qualified employer when submitting your PSLF forgiveness application. 

When Switching From SAVE to New IBR Might Make Sense:

The advantages of switching to New IBR and PAYE are 99% similar. However, you can go directly to New IBR if you prefer not to switch off PAYE when it becomes obsolete in 2028. The New IBR will continue to exist, and the payments for New IBR and PAYE are exactly the same. The only downside of New IBR compared to PAYE is that if you ever need to switch off New IBR, your interest will capitalize. So, if a more attractive IDR plan is introduced in the future, any unpaid interest will be added to the loan principal. This only becomes a problem if you need to pay off your loans in full later. 

Private Refinancing Might Make Sense:

You will definitely pay off your student loans, and refinancing with a private lender can lower your student loan interest rate by over 2%. I mention 2% because you should carefully consider this option, as a private takeover of your federal loans is irreversible and can also remove some protections. Additionally, it could exclude you from any future relief resulting from policy changes by a different administration. 

The Biggest Variable is Future Policy Uncertainty Beyond This Administration

Student loan policy may become a single-issue concern for voters in the future. There will be considerable frustration due to the fallout from OBBBA. And contrary to belief, this isn’t just coastal liberal arts professionals who will suffer. Doctors and lawyers are also taking a big hit. Furthermore, the downsizing of the federal government eliminated the possibility of PSLF for many public servants. Our teachers, first responders, and soldiers, who are already struggling to make ends meet, may now face higher payments. This is pure speculation, but I believe the Democrats will try to capitalize on this, and if they successfully regain unified control, we could see another major shift in policy.

Our Biggest Recommendation

If you’re confused, hire a knowledgeable expert in student loan repayment and forgiveness. Several reputable companies offer one-time consultations for $400 to $700. Student loan strategies can be complicated, and choosing the right one could save you tens of thousands of dollars. That’s a potentially huge return on your money. And whatever you do, ignore anyone in the media *lecturing* you about how you should pay back your student loans dollar for dollar. Ignore their tired ass complaints about how people used to honor their debts in the past. If you are eligible for a path toward forgiveness and will spend less getting there than paying back your student loans in full, it is your American right by law to pursue it!

Great Day Louisiana: Tips For Staying On Top Of Student Loan Repayments (originally aired on July 17th, 2025)

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Fiduciary, fee-only, Certified Financial Planner, Mike Turi

Mike Turi, CFP® APMA™ is the Founder and a Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.

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Disclaimer: All content in this article is provided for educational, general information, and illustration purposes only. None of the information is intended as investment, tax, accounting, or legal advice. Nor is it a recommendation for purchase or sale of any security, or investment advisory services. We encourage you to consult with a financial planner, accountant, and/or legal professional for advice on your specific situation. Read our full disclaimer here.

Upbeat Wealth on the News: The Truth Behind Credit Cards

Upbeat Wealth Founder Mike Turi joins Great Day Louisiana’s Malik Mingo to discuss the truth behind credit cards. Check out the video and the blog below for the good, the bad and the ugly!

Great Day Louisiana: The Truth Behind Credit Cards

The Biggest Credit Card Myths

  1. Closing a Credit Card Does Irreparable Damage to your Credit Score: Credit history is a small component of your overall score. Yes, be cautious about the timing of closing credit cards if you are actively shopping for a car or home, but do not sweat closing a credit card that charges you an annual fee greater than your benefits.

  2. Making the minimum payment doesn’t result in interest charges: However, unless you have a 0% introductory rate, interest will accrue on the unpaid balance over the minimum payment. To avoid interest charges, pay off your full statement balance on time.

  3. Having more credit cards is a sign of money trouble and overspending: Having multiple credit cards can make it easier to categorize and track spending. Additionally, many consumers have the time and talent to play the points game without sacrificing their financial stewardship.

Common Mistakes

  1. Overspending: You are dangerously treading water if you consistently purchase items on credit that you couldn’t purchase outright. The average interest rate across credit cards is 24%. If you cannot pay your unpaid balance and that interest starts to compound, it’s a very tough situation to get out of.

  2. Foreign transaction fees: Know if your card charges one before traveling internationally or making international purchases.

  3. Chasing rewards: Do not put the cart before the horse. Churning credit cards or inefficiency tracking your expenses may prevent you from having control over your cash flow. For most, it’s better to optimize rather than maximize. Understanding your actual cash flow so you’re spending/saving with intention is more powerful than grabbing every last mile on vacation booking.

How to Use Credit Cards Responsibly

Credit cards aren’t inherently bad. Consumers receive great benefits such as convenience, purchase protection, and rewards! 

  1. Charge what you can afford: Treat your credit card like it’s a debit card or cash. While technically borrowing money from the credit card company, you’re actually just borrowing from your future self if you struggle to pay your entire balance on time.

  2. Building credit: Credit cards are a great way to build up your credit for making bigger purchases that require a secured loan, such as a home or car. Interest rates are correlated with the strength of your credit.

  3. Understand your redemption options: Earning points is easy, but understanding their value and properly redeeming them is rather complicated. 

Finding the Right Credit Card

If you can responsibly use credit, I recommend having a few different credit cards. Assigning spending categories to credit cards makes tracking your spending and maximizing your rewards easier. This is especially helpful if you are trying to limit spending on a specific subcategory. By keeping it on 1 credit card, you can monitor the balance weekly and stay on track. The categories to pursue depend on your household. There’s pretty much a card for everything! For simplicity, I recommend having a general cash-back card for fixed expenses and then specializing from there. Pick two or three categories you allocate the most resources toward and find the best rewards! Often, I encourage clients to separate their discretionary day-to-day expenses, such as dining, entertainment, and shopping, onto a single card, as many are prone to overspend on these categories and lose sight of their budget. Looking for the best deal? There is an abundance of information available on the Internet about the best cards by category and current bonus offers. There are entire communities dedicated to maximizing one-time and ongoing credit card rewards. And it’s not just about miles, points, and cash back. Credit cards often include great perks like airport lounge access, streaming service or rideshare credits, free global entry/TSA precheck, and complimentary hotel services. Ultimately, the best rewards are those you seamlessly take advantage of without introducing too much hassle.

In Credit Card Debt? Here are the Next Steps!

Stop using your credit cards immediately and look for areas where you can cut back. If necessary, you may need to pick up temporary extra work. While the financial ramifications of credit card debt can be incredibly damaging, the behavioral aspect is the tougher cycle to break. 

  1. Contact a licensed credit counselor via the National Foundation for Credit Counseling. Before you can fix the debt, you have to correct the behavior.

  2. Create a plan to eliminate the debt and stick to it! Staying on track and knowing the end game can be motivating. 

  3. Budget seriously and save a sustainable amount toward an emergency fund to reduce your chance of taking on future debt. 

  4. Call your credit card company, explain the situation, and see if they’ll pause interest charges on your card or get you on a mutually beneficial payment plan. 

  5. Determine what motivates you to keep going more between paying the highest interest rate debt vs. the smallest balance.

  6. After successfully correcting the behavior, explore a balance transfer or loan consolidation to save interest as you repay.