Student Loans Just Changed. Here Is What To Do If You Cannot Pay Right Now.
Let me start with the number that made me want to write this.
Federal Student Aid’s June 2026 data shows more than 9.3 million borrowers with defaulted federal loans, alongside approximately 3.5 million borrowers more than 30 days behind on loans in active repayment. Because borrowers can appear in more than one loan-status category, these figures shouldn’t be added together as a count of unique people. If you’re struggling to make your payments, you’re far from alone.
I wrote a post recently about bankruptcy, and one of the things I said in it was that bankruptcy generally will not erase student loans. That is still true. But it left a question hanging, and it is the question I keep getting asked. If bankruptcy is not the answer, then what is?
That is what this post is.
The rules changed on July 1 of this year. A new repayment plan launched, forgiveness became taxable again, and the Department of Education delayed restarting involuntary collections while the new repayment system rolls out. And a lot of the advice floating around right now is either outdated or flat out wrong. So let me walk you through what actually changed, where you stand, and what your real options are if paying right now is not in the budget.
I am not an attorney or a financial advisor. This is a plain language explanation, not legal advice. Everything here should be verified against your own loan details at studentaid.gov.
## What actually changed
Three things, and they matter in different ways depending on who you are.
One. There is a new repayment plan called RAP. The Repayment Assistance Plan launched on July 1, 2026. Payments run from 1% to 10% of your adjusted gross income, with a $10 minimum floor. Forgiveness comes after 360 qualifying payments, which is 30 years.
Here is the part I want you to hear clearly. RAP is not automatic. Nobody is going to move you onto it without an application. If you have older loans and you do nothing, you will not wake up on RAP.
Two. Forgiveness became taxable again. The tax exemption on forgiven student loan balances expired at the end of 2025 and was not renewed. So starting January 1, 2026, if you reach forgiveness through an income driven plan, the forgiven amount is treated as federal taxable income. Death and disability discharges are still exempt. Two exceptions are worth knowing. Forgiveness through Public Service Loan Forgiveness or Teacher Loan Forgiveness is not taxed. And if you are insolvent when a balance is forgiven, some or all of it may be excluded from income. That second one is a question for a tax professional, not a guess.
This is the change almost nobody is talking about, and it is a big deal. If you are 20 years into a plan expecting a clean slate at the end, plan for a tax bill instead.
Three. The government kept its collections authority, but delayed using it. You may have read that wage garnishment restarted in January. That is not what happened. On January 16, 2026, the Department of Education announced that it was delaying involuntary collections, including Administrative Wage Garnishment and the Treasury Offset Program, while it implements the new repayment reforms. As of this writing, the Department has not announced a restart date, and I will not invent one. The authority itself has not gone away. For a defaulted federal loan, the government can order an employer to withhold up to 15% of your disposable pay without suing you first, and Treasury Offset can take tax refunds and certain federal benefits, including Social Security. Authority and timing are two different things. Right now, the timing is paused, and that pause is time you can use to explore rehabilitation or consolidation, and the repayment options that become available once a default is resolved.
And one thing that did not change, despite what you may have read. You may have seen panic about economic hardship and unemployment deferments going away. That applies to loans made on or after July 1, 2027. If your loans already exist, you still have access to those deferments under the current rules. Do not let a headline scare you out of an option you actually still have.
## First, figure out where you actually stand
Everything after this depends on which bucket you are in. Log in to studentaid.gov and find out. Do not guess, and do not go off what you assume based on the last email you ignored.
Current. You are making payments, or your payment is $0 under an income driven plan and you are in good standing.
Delinquent. You have missed payments but you are less than 270 days behind. This is the bucket where you still have the most control, and it is the bucket most people panic-freeze in.
In default. You have gone 270 days or more without a payment. Your full balance is now due, and the government has collections tools for defaulted loans, even though it has delayed using the biggest ones for now.
The gap between delinquent and default is the whole game. If you are delinquent, fixing this is paperwork. If you are in default, fixing this is a process. Both are fixable. They just take different tools.
## If you are current but the payment is squeezing you
Check whether you are on the right plan. A lot of people are on the standard 10 year plan by default and have never applied for anything income driven. If your income has dropped, or you have added dependents, or you simply never ran the numbers, you may be paying significantly more than you have to.
If you were on SAVE, you have a decision to make right now. SAVE borrowers started receiving servicer notifications in July, and you get 90 days to choose a new plan. If you do not choose, you will get a final 30 day notice before anything changes. Borrowers who still do not act are placed automatically into a standard plan: the Tiered Standard Plan if you have a loan made on or after July 1, 2026 that has entered repayment, and the Standard Repayment Plan if all of your loans are older. Either way, that generally means a higher payment than an income driven option. Do not let this one default on you. Open the mail.
Understand your two income driven lanes. If all of your loans were disbursed before July 1, 2026, you can choose between IBR and the new RAP. IBR caps your payment at what you would have paid under the standard plan, which RAP does not do. If you want IBR, you must be enrolled by July 1, 2028. Miss that and you are locked out of it permanently.
Run both numbers before you pick. For a lot of borrowers, especially lower income ones, RAP produces a higher monthly payment than the plans it replaced. Newer is not automatically better.
Recertify your income on time. Every year, without fail. A missed recertification can kick your payment back up to the standard amount, and that is how people who were doing everything right end up delinquent.
## If you are behind but not in default yet
This is the most important section in this post, because this is the window where you have the most options and the least time.
Call your servicer. Today. I know. Nobody wants to make that call. Make it anyway. Servicers have retroactive options that stop working once you cross into default, and they cannot offer you anything if they have never heard from you.
Apply for an income driven plan. Your payment could go to $10 a month under RAP, or lower under IBR depending on your income and family size. A payment you can actually make beats a payment you keep failing to make.
Ask about economic hardship or unemployment deferment. If your loans were made before July 1, 2027, these are still on the table. They can pause payments for up to three years if you qualify. On subsidized loans, interest does not accrue during deferment, which means your balance does not grow while you catch your breath.
Forbearance is the backup, not the plan. General forbearance pauses payments, but interest keeps accruing and gets added to your balance. Use it to survive a specific short term crisis. Do not use it as a long term strategy, because you will come out the other side owing more than you went in.
Order of operations if you can only do one thing: income driven plan first, deferment second, forbearance third. That order is not random. It is cheapest to most expensive.
## If you are already in default
Default feels like the end of the road. It is not. But you cannot fix it by just resuming payments, and this is where a lot of people waste months.
Once you are in default, sending money to your servicer does not restore good standing on its own. You need one of two specific processes.
Loan rehabilitation. You agree to make nine voluntary, reasonable, and affordable payments within a set window. The payments are based on your income, and right now the minimum can be as low as $5 a month. When you complete all nine, your loan returns to good standing.
The reason this is usually the better option: rehabilitation removes the default notation from your credit reports. Consolidation does not.
The catch: it takes at least nine months, and you generally get one rehabilitation per loan. Two changes arrive on July 1, 2027: the minimum payment becomes $10, and you get up to two rehabilitations per loan instead of one.
Loan consolidation. This pays off your defaulted loan and issues a new Direct Consolidation Loan that is not in default. It is much faster, measured in weeks rather than most of a year.
The catch, and this is new and important: a consolidation loan issued now is a post July 2026 loan, which means RAP becomes your only income driven option going forward, with the Tiered Standard Plan as the non income driven alternative. The deadline to consolidate and keep access to the older plans has already passed. Consolidation also leaves the record of the default on your credit history. It resolves the default, it does not erase that it happened. One important exception: parent PLUS loans cannot be repaid under RAP, and consolidating a parent PLUS loan does not change that. A consolidation loan that repaid a parent PLUS loan is excluded from RAP too, so parent borrowers have narrower options and should check the current Federal Student Aid guidance for their own loan history before consolidating.
So which one? If you need the default gone from your credit or you want to protect your access to IBR, rehabilitation. If you need this resolved in weeks because something urgent is happening, consolidation. Speed versus what you keep.
One thing to be clear about: while a loan is in default, you cannot simply enroll in an income-driven repayment plan. Rehabilitation or consolidation resolves the default first. The repayment plan choices, including income-driven options where your loans qualify, come after that.
And to be clear about something you may have seen: the Fresh Start program has ended. If a website or a caller tells you Fresh Start is still available, that source is out of date or lying to you.
## If garnishment has already started or a notice arrived
As of October 2026, involuntary collections are delayed and no restart date has been announced, so most readers will not have a garnishment notice in hand today. If one does arrive, this is the section to use.
Do not ignore the envelope. That notice is a clock, and the clock has real consequences.
You have the right to request a hearing. You can object on several grounds, including that the garnishment would cause financial hardship, that you do not owe the debt, that you are already making payments under a repayment agreement, or that you have filed for bankruptcy.
Timing matters enormously, and the deadline that controls your case is the one printed on your own notice. Follow that deadline, not a number from a blog post, including this one. Request your hearing in writing as soon as the notice arrives, and keep proof of the date you sent it. A timely request pauses deductions while your case is reviewed, and decisions are generally due within about 60 days of the request. If the deadline on your notice is close, or you are not sure it has passed, get help the same day, from the Default Resolution Group, a nonprofit credit counselor, or legal aid.
Know the limits. Garnishment cannot exceed 15% of your disposable pay, and it cannot take you below the equivalent of 30 times the federal minimum wage per week. If your employer is withholding more than that, contact your servicer and get it corrected.
Bring documentation to a hardship claim. Pay stubs or tax returns showing all household income. Copies of your monthly bills, including housing, transportation, insurance, child care, and medical. A reasonable estimate of what you spend on food and other basics. General statements about money being tight will not carry the argument. Documented numbers will.
And your employer cannot fire you over this. Federal law protects you from being discharged because of a garnishment for a single indebtedness. That protection exists. Use it if you need it.
Understand what a hardship win actually gets you though. It reduces or pauses the garnishment. It does not remove the default. So pair it with rehabilitation or consolidation, or you will be right back here when the hardship period ends.
## What to do this week
Five things. None of them cost money.
1. Log in to studentaid.gov and find out your actual status, balance, loan types, and servicer. Not what you think. What it says.
2. Open the mail. Especially if you were on SAVE. Check whether your 90 day window is still open, and watch for a final 30 day notice if it is not.
3. Run the numbers on IBR versus RAP if you have pre July 2026 loans. There are free calculators. Do not pick blind.
4. Call your servicer if you are behind at all, even one payment.
5. If a notice has arrived, act on it this week. Follow the deadline printed on the notice itself, request your hearing in writing right away, and keep proof of when you sent it.
Free help exists. The Department of Education has a Default Resolution Group. Nonprofit credit counselors and legal aid organizations handle student loan issues at no cost in most areas.
And please hear me on this one. Nobody legitimate charges you a fee to enroll in a federal repayment plan. Every one of these programs is free to apply for. If someone is charging you for access, promising fast forgiveness, or pressuring you to decide today, walk away. Debt relief scams target exactly this moment, when people are scared and behind.
## The part I actually want you to take with you
I know what it feels like to open a statement and have your stomach drop. I have been on the wrong side of debt more than once, and I have written here about filing bankruptcy twice, so this is not theory for me.
Here is what I learned both times. The worst thing debt does to you is not financial. It is that it makes you stop looking. You stop opening the mail. You stop logging in. You start making decisions by avoidance, and avoidance is the most expensive strategy there is, because every single option in this post gets narrower the longer you wait.
Delinquent has more options than default. Before garnishment has more options than after. Acting on a notice the week it arrives has more options than acting on it later.
You do not have to fix this today. You just have to look at it today.
Living rich is not about having no debt. It is about knowing exactly where you stand and making decisions on purpose instead of by default. Log in. Read the number. Then pick your move.
You can do hard things. You have already done harder.
live rich. love loud.
Tiah
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I am not an attorney, a financial advisor, or a credit counselor, and nothing in this post is legal or financial advice. Federal student loan rules are changing rapidly and your options depend on your specific loan types and disbursement dates. Verify everything against your own account at studentaid.gov and consider speaking with a nonprofit credit counselor or a student loan attorney before making decisions.
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