Upcoming Changes to Student Loan Repayment Plans
July 1 marks a significant shift in student loan regulations, as new repayment plans come into effect and existing schemes are phased out. These changes are a result of the One Big Beautiful Bill Act, which introduces two Republican-designed plans and imposes stricter borrowing limits. As these changes take place, it is crucial for borrowers to understand how they might be affected.
This article breaks down the changes based on various borrower situations, providing guidance on what to expect and how to adapt to the new landscape.
Current Borrowers on the SAVE Plan
The Biden-era Saving on a Valuable Education (SAVE) plan, once a go-to for over 7 million borrowers, is ending. This plan was known for its flexibility and generous terms. Borrowers still enrolled in SAVE will receive a notification from the U.S. Department of Education, urging them to switch plans within 90 days to avoid being rolled into a less flexible repayment option.
Financial aid experts warn that pushing borrowers into new plans could lead to an increase in student loan defaults, especially for those who previously benefited from $0 monthly payments due to low income.
For more information on the SAVE plan, visit the legal battle and Supreme Court ruling.
Borrowers with Old Loans and No Plans for New Loans
For borrowers with loans issued before July 1 and no intention to take out new loans, several repayment plans are available, including a new option:
- Standard Repayment Plan: Equal monthly payments over 10 years, or longer if loans are consolidated.
- Graduated Repayment Plan: Initially low payments that increase every two years over a 10-year term.
- Extended Repayment Plan: Fixed or graduated payments over a 25-year period.
Income-driven repayment plans like Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), and Pay As You Earn (PAYE) consider borrowers’ income and offer loan forgiveness after a certain period. However, some of these plans will be phased out by 2028.
New Borrowers after July 1
New borrowers will be limited to the two new repayment plans introduced in the One Big Beautiful Bill Act: The Repayment Assistance Plan (RAP) and the Tiered Standard Plan. These plans offer different repayment durations based on the amount owed, with the Tiered Standard Plan providing longer repayment periods for larger debts.
Undergraduate and graduate students will face new borrowing limits, with specific caps per year and in total. Some professional degrees are exempt from these limits.
Public Service Loan Forgiveness (PSLF)
The PSLF program remains available, offering loan forgiveness for borrowers who work full-time in public service for 10 years while making 120 qualifying monthly payments. Recent rule changes may affect eligibility based on the activities of borrowers’ employers.
To learn more about PSLF, refer to this story on potential rule changes.
Parent PLUS Loans
Parents looking to support their children’s education will see new borrowing limits and repayment options. Parent PLUS loans will be capped, and new borrowers will only have access to the Tiered Standard Plan, eliminating options for income-driven plans and PSLF eligibility.
For a detailed breakdown of all available repayment plans, including links to loan simulators, visit the full guide.
This article was originally written by www.npr.org
