Overview of ChooseFI Episode 619: The Student Loan Rulebook Was Rewritten
In this episode, Brad chats with student-loan expert Travis Hornsby about how the federal student loan system has been fundamentally reshaped. The big theme: borrowers now fall into two very different worlds — pre–July 2026 and post–July 2026 — with different borrowing caps, repayment options, and planning strategies. Travis explains what changed, why it matters, and what borrowers, students, and families should do next.
What Changed in the Student Loan System
The new split: “before July 2026” vs. “after July 2026”
- Borrowers who took out all of their loans before July 2026 still have access to more of the old rules and repayment flexibility.
- Anyone who borrows after July 2026 faces a much tighter system:
- Fewer repayment options
- Hard borrowing caps
- A greater likelihood of needing to repay debt more traditionally, rather than relying on forgiveness strategies
Borrowing caps are now much lower
Travis explains that the new law dramatically limits how much students can borrow going forward:
- Undergrad / Parent PLUS: roughly $65,000 per child
- Graduate school: about $20,500 per year
- Professional school: about $50,000 per year
- Total professional-school borrowing is roughly $200,000
This is a major shift from the previous “borrow almost unlimited amounts” era.
Repayment Plans: Fewer Options, More Simplification
For borrowers with pre-July 2026 loans
They still generally have access to:
- IBR (Income-Based Repayment)
- RAP (Repayment Assistance Plan)
Travis notes that old plans like PAYE/ICR are being phased out or sunset.
IBR details
- Borrowers with loans from before July 2014 may pay 15% of income
- Borrowers with loans taken out after July 2014 may pay 10% of income
- Private-sector forgiveness timelines differ:
- 20 years for newer IBR
- 25 years for older IBR
RAP details
- RAP is the main plan for people borrowing after July 2026
- It lasts 30 years
- Payments are tied to income, with a stepwise formula
- Roughly:
- 10% of income above $100,000
- 1%–10% below that
- Dependents now provide a simpler flat $50-per-dependent adjustment
Travis’s takeaway: the system is “simpler,” but also less forgiving.
The Return of the Tax Bomb
PSLF remains tax-free
- Public Service Loan Forgiveness (PSLF) is still tax-free after 10 years of qualifying payments
- Death and disability discharges are also still tax-free
Private-sector forgiveness is taxable again
- If you get forgiveness outside PSLF, the forgiven amount is once again treated as taxable income
- That means a borrower could receive a large tax bill in the year forgiveness happens
Travis expects this to show up more publicly when the first 2026 forgiveness-related 1099s go out.
Important caveat
- The insolvency exclusion may shield some borrowers if their debts exceed their assets
Parent PLUS Loans: Much Less Attractive
One of the biggest warnings in the episode is about Parent PLUS loans.
Why they’re a problem now
- Parent PLUS borrowers after July 2026 effectively lose access to affordable income-driven repayment options
- This makes Parent PLUS a loan of last resort
- Parents may now be better off looking at private loans, if they can get a better deal
Why this matters
Travis says the law created a dangerous window where many parents may end up in default because they can borrow, but don’t have workable repayment options.
Private Loans Are Likely to Grow Fast
Because federal borrowing is now capped, Travis expects the private student loan market to expand significantly.
Key warning
- Private loan pricing can vary wildly
- He gave an example of offers ranging from 7% to 14%
- Borrowers should shop aggressively and compare multiple lenders
Important tradeoff
- Private loans may offer better rates
- But they often come with fewer protections than federal loans
- Many are also harder to discharge in bankruptcy
Higher Ed Is Going to Feel the Pressure
Travis believes these policy changes will force colleges and universities to adjust.
Likely outcomes
- More pressure on schools to lower prices
- More discounting and aid offers to attract students who can pay
- Greater stress on weaker-brand private schools
- Potential layoffs and financial strain in higher education
Not all schools are equal
- Big-name schools with strong demand may do fine
- Schools with weaker brands, high tuition, or less financial cushion may struggle more
Negotiation Is More Important Than Ever
A major theme of the episode is that students and families should negotiate aggressively.
College pricing is flexible
Travis argues that many “merit aid” offers are really just discounting:
- Schools use pricing strategy based on what students can pay
- You should compare offers and ask schools to match or beat competing aid packages
Best practice
- Apply strategically
- Use competing offers as leverage
- Ask directly whether a school can do better
- Don’t be afraid to ask — it usually doesn’t hurt
Tax Strategy Matters for Student Loan Borrowers
Because repayment plans are based on income, tax strategy can have a real impact on monthly payments.
Key planning ideas
- Pre-tax 401(k) contributions can reduce the income used to calculate payments
- HSAs and other pre-tax accounts can help too
- If you’re in a high student-loan payment situation, traditional pre-tax saving may be more valuable than Roth contributions
- Some married borrowers may need to consider separate filing — which can affect Roth IRA eligibility and may require a backdoor Roth
Travis’s point: people with student loans should think about their true marginal tax rate, not just their tax bracket.
PSLF Buyback and Litigation: What’s Real and What’s Noise
PSLF buyback
- Created to help borrowers buy back months spent in forbearance/deferment that didn’t count toward PSLF
- Became much more important after millions of borrowers were pushed into forbearance during SAVE-related litigation
- It’s useful, but it can take months to process
Litigation update
Travis says most current student-loan litigation is:
- Highly specific
- Politically charged
- Important to affected individuals, but not as broad as headlines suggest
His overall view: most borrowers do not need to panic over the lawsuits.
Practical Advice for Borrowers Right Now
If you’re already in repayment
- Know which cohort you’re in: pre- or post-July 2026
- Don’t miss plan-selection deadlines
- Avoid being pushed into a worse standard repayment option by default
- Consider whether refinancing makes sense
If you’re planning grad or professional school
- Think carefully about total cost and repayment path
- Build credit early if you may need private non-cosigned loans later
- File taxes strategically when you graduate
- Make sure you understand whether your program qualifies as “professional” under the new rules
If you’re shopping for college
- Treat it like a negotiation
- Compare schools against each other
- Look for real value, not just prestige
- Be honest about what you can actually afford
Travis’s Bigger Message
Travis ends on a broader note: many financially disciplined ChooseFI listeners are likely to become much wealthier than they realize over time.
His advice:
- Don’t let fear of student loans make you delay every good life experience
- Be careful with big financial decisions
- But don’t be overly frugal about small meaningful experiences
- Focus on the high-impact choices: school pricing, repayment strategy, taxes, and leverage
Main Takeaways
- The student loan system has been rewritten.
- There are now effectively two borrower worlds: pre- and post-July 2026.
- Borrowing caps are much lower, and repayment options are much fewer.
- PSLF remains valuable, but private-sector forgiveness is again taxable.
- Parent PLUS is now far less attractive.
- Families and students should negotiate harder and think like consumers.
- Tax planning and pre-tax savings can materially improve student-loan outcomes.
Recommended Action Items
- Identify whether your loans are pre- or post-July 2026
- Review your repayment plan options before deadlines hit
- Maximize pre-tax retirement saving if you’re on an income-based plan
- Shop private lenders carefully if federal options are limited
- Negotiate financial aid aggressively
- Consider personalized help if you have six figures of debt or a major repayment decision to make