IL has some of highest student loan payments. What federal policy changes mean for you
Illinois residents have among the top 10 highest student loan payments in the nation, according to one analysis, and federal policy changes in 2026 will make several changes to student loan borrowing and repayment.
An October report from financial website WalletHub named Illinois the No. 8 state for “States with the Highest Student Loan Payments,” with a median cost of $226. Vermont was named the most expensive state for student loan payments, with a median of $248, while Mississippi came in last at $142.
“Roughly 42.3 million Americans collectively owe $1.67 trillion in student loans — an average of more than $39,000 per person. With the end of the student loan payment moratorium, borrowers have resumed payments, and the burden varies widely depending on where they live,” WalletHub’s analysis reads.
The U.S. Department of Education reported Jan. 16 it would delay implementing involuntary collection of federal student loans, including wage garnishments previously scheduled to begin in January. The federal agency did not report a specific date the delay would end, but said it was “temporary.”
President Donald Trump’s new federal rules, part of what’s popularly referred to as the “One Big Beautiful Bill Act,” have reduced the number of repayment plans and will institute an updated income-based repayment plan beginning Wednesday, July 1.
The new income-based repayment plan will waive unpaid interest for borrowers whose on-time payments don’t fully cover accrued interest and will include “small matching payments” from the education department, in certain circumstances, to ensure the principal balance shrinks each month.
“The delay in collections will give defaulted borrowers additional time to evaluate these new repayment options once they consolidate their loans or complete a repayment or rehabilitation agreement,” the Department of Education’s news release said.
Another change student loan borrowers may want to be aware of is that certain forms of student loan forgiveness will be taxable again after a 2021 measure from former President Joe Biden expired Dec. 31, as reported by Capitol News Illinois.
The provision of the American Rescue Plan Act, enacted in aims of reducing economic stress caused by the pandemic, temporarily excluded student loan debt from federal income taxes, but the measure is no longer in effect.
Illinois state lawmakers have not yet introduced any legislation to extend the relief, but the state legislature did decouple from another federal tax policy recently.
Part of the “One Big Beautiful Bill Act” instituted a temporary policy to stop collecting federal income taxes on tipped income up to a $25,000 limit. Eligible tipped workers must make less than $150,000 a year, and the federal tip deduction is set to last through the end of 2028.
Illinois decoupled from the no income tax on tips provision, so taxpayers will still pay Illinois state income tax on their tips, though they won’t at the federal level. Along with Illinois, New York, California and the District of Columbia have also decoupled from the policy.
What happened to student loan forgiveness?
Former President Biden’s most widespread student loan forgiveness plans did not come into fruition, but some more limited forgiveness options are available.
The Public Service Loan Forgiveness Program will still be available this year, although updates to the program will go into effect July 1. The primary change is the definition of a “qualifying employer” has been updated to “exclude employers that participate in illegal activities such that they have a substantial illegal purpose,” the Department of Education reported.
The PSLF program applies to those who work for a government agency or nonprofit organization. The program forgives the remaining balance on your direct loans after you’ve made the equivalent of 120 qualifying monthly payments under an accepted repayment plan and while working full-time for an eligible employer.
The government’s Federal Student Aid website has an online tool where you can search to see if your employer qualifies you for the program. To use the tool, you’ll need the dates of your employment, as well as your employer’s Employer Identification Number.
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